LESSON ONE ACCOUNTING： AN INFORMATION SYSTEM

Accounting is an information system necessitated by the great complexity of modern business.

One of the most important functions of accounting is to accumulate and report financial information that shows an organization’s financial position and the results of its operations to its interested users. These users include managers，stockholders，banks and other creditors, governmental agencies，investment advisors, and the general public. For example, stockholders must have an organization's financial information in order to measure its management's performance and to evaluate their own holdings. Banks and other creditors must consider the financial strength of a business before permitting it to borrow funds. Potential investors need financial data in order to compare prospective investments. Also,many laws require that extensive financial information be reported to the various levels of government. Businesses usually publish such reports at least annually. To meet the needs of the external users, a framework of accounting standards, principles and procedures known as ‘‘generally accepted accounting principles” have been developed to insure the relevance and reliability of the accounting information contained in these external financial reports. The subdivision of the accounting process that produces these external reports is referred to as financial accounting.

Another important function of accounting is to provide the management inside an organization with the accounting information needed in the organization’s internal decision-making，which relates to planning, control，and evaluation within an organization. For example，budgets are prepared under the directions of a company's financial executives on an annual basis and express the desires and goals of the company’s management. A performance report is supplied to help a manager focus his attention on problems or opportunities that might otherwise go unnoticed. Furthermore, cost-benefit data will be needed by a company’s management in deciding among the alternatives of reducing prices，increasing advertising, or doing both in attempt to maintain its market shares. The process of generating and analyzing such accounting information for internal decision-making is often referred to as managerial accounting and the related information reports being prepared are called internal management reports. As contrasted with financial accounting, a managerial accounting information system provides both historical and estimated information that is relevant to the specific plans on more frequent basis. And managerial accounting is not governed by generally accepted accounting principles.

The growth of organizations，changes in technology, government regulation, and the globalization of economy during the twentieth century have spurred the development of accounting. As a result, a number of specialized fields of accounting have evolved in addition to financial accounting and managerial accounting, which include auditing, cost accounting, tax accounting, budgetary accounting, governmental and not-for-profit accounting, human resources accounting, environmental accounting, social accounting, international accounting, etc. For example, tax accounting encompasses the preparation of tax returns and the consideration of the tax consequences of proposed business transactions or alternative courses of action. Governmental and not-for-profit accounting specializes in recording and reporting the transactions of various governmental units and other not-for-profit organizations. International accounting is concerned with the special problems associated with the international trade of multinational business organizations. All forms of accounting, in the end, provide information to the related users and help them make decisions.

New Words, Phrases and Special Terms

Notes to the Text

1.Accounting is an information system necessitated by the great complexity of modern business.

过去分词短语necessitated by…修饰句中表语an information system.

2.One of the most important functions of accounting is to accumulate and report financial information that shows an organization’s financial position and the results of its operations.

(1)不定式复杂结构to accumulate and report financial information…是句中的表语。

(2)在这一复杂结构中，由关系代词that引导的定语从句修饰financial information.

3. Bankers and other Creditors must consider the financial strength of a business before permitting it to borrow funds.

(1)动名词短语permitting it to borrow funds 用作介词before 的宾语。

(2)动名词permitting的复合宾语中，宾语it的补语是不定式短语to borrow funds.

4.Also，many laws require that extensive financial information be reported to the various levels of government.

(1)主句谓语动词require的宾语是由连词that引导的从句。

(2)这一宾语从句中的谓语动词be reported属祈使语气，其前的should可省略。 

READING MATERIAL

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Financial accounting relies on certain standards (准则) or guides (指南)that have proved useful over the years in imparting economic data. These standards are called generally accepted accounting principles (公认会计原则).They are closely related to experience and practice and may change over time. Various terms, such as principle，standard，assumption(假设)，convention(惯例)，and concept (概念) ，are often used to describe such guides.

The most fundamental concepts underlying the accounting process are：

Accounting Entity(会计主体).Each business venture(企业) is a separate unit, accounted for separately.

Going Concern(持续经营).The assumption is made in accounting that a business will continue indefinitely.

Measuring Unit (计量单位).Conventional accounting statements (传统会计报表)are not adjusted for changes in the value of the dollar.

Accounting Period (会计期间).Accounting reports are related to specific time periods，typically one year.

Historical Cost(历史成本).Assets are reported at acquisition price (取得价格)and are not adjusted upward.

Objectivity(客观性).Whenever possible，accounting entries must be based on objectively determined evidence.

A number of organizations exist in U. S. A. that are concerned with the formulation of accounting principles. The most prominent among them is the Financial Accounting Standards Board(FASB财务会计准则委员会).The FASB，organized in 1973，is a nongovernmental body(f非政府机构)whose pronouncements have the force of dictating authoritative rules for the general practice of financial accounting. Before the creation of the FASB，the Committee on Accounting Procedure (CAP,会计程序委员会)and latter the Accounting Principles Board (APB 会计原则委员会)of the American Institute of Certified Public Accountants ( AICPA美国注册会计师协会)fulfilled the function of formulating accounting principles.

LESSON TWO ASSETS SECTION OF BALANCE SHEET

There are three basic financial statements which are the end products of financial accounting： Balance Sheet, Income Statement and the Statement of Cash Flows. The nature and formats of the first two statements will be illustrated in this and the following two lessons. Balance sheet and income statement are prepared at least yearly, but it is also customary to prepare them quarterly or monthly.

Balance Sheet is a listing of an organization’s assets, liabilities and owners’ equity on a given date. It is designed to portray the financial position of the organization at a particular time (e. g., on January 31，2000). As presented in Exhibit 2-1，the three major sections of the balance sheet are presented in the T-account format. This presentation allows the users to tell at a glance that total assets (e. g.，$ 259 000) are being financed by two sources ： $ 79 000 by the creditors (i. e., liabilities) and $ 180 000 by the owner (i. e.,owners’ equity). An important aspect of this statement is that the total assets always equal the sum of liabilities and owner’s equity. This balancing is sometimes described as theaccounting equation： Assets = Liabilities + Owners’ Equity. This lesson deals with the assets section of a balance sheet. The liabilities and owner’s equity section will be discussed in Lesson Three.

Assets are the economic resources of an organization that can usefully be expressed in monetary terms. The assets of Douglas Company have been further classified into current assets and long- term assets. Current assets are cash and other assets that will be converted into cash or used up during the normal operating cycle of the business or one year, whichever is longer. Current assets are usually listed in the order of their “liquidity” or convertibility into cash. Some examples of current assets other than those shown in Exhibit 2-1 are notes receivable and marketable securities. Prepaid expenses such as insurance, rent, and supplies are normally consumed during the operating cycle rather than converted into cash.

Long-term assets are relatively long-lived assets used in operating an organization and may be further classified into fixed assets, or plant and equipment, and intangible assets. Fixed assets may include land, buildings, and various kinds of equipment (machinery, store fixtures, office equipment, delivery equipment, etc.). They constitute the major category of long term assets. Depreciable assets are normally shown at their original cost. The accumulated portion of the cost taken as depreciation to date is subtracted from its original cost to obtain the book value of the asset. Intangible assets are characterized by the legal claims or rights which may include patents, trademarks, franchises, copyrights, goodwill, etc..

 New Words, Phrases and Special Terms

Notes to the Text

1.Financial statements are prepared at least yearly, but it is also customary to prepare them quarterly or monthly.

(1)用连词but连接的并列句。

(2)在 it is also customary to prepare…这一分句中，it作引词，是分局内的形式主语，真正主语是不定式短语toprepare…。

2.This presentation allows the users to tell at a glance that total assets (e. g.，$ 259 000)are being financed by two sources： $ 79 000 by the creditors (i. e., liabilities) and $ 180 000 by the owner (i. e.,  owner's equity).

(1)全句的谓语动词 allows的复合宾语 thereader+to tell…that …and that…,，不定式复杂结构 to tell…在复合宾语中作补语。

(2)不定式to tell的宾语是用连词and连接的两个并列的从句，每一从句都用连词that引导。

3. An important aspect of this statement is that the total assets always equal the sum of liabilities and owners’ equity.

(1)由连词that引导的从句，在全句中作表语。

(2)equal用作动词时，是及物动词(如句中)；equal也可用作形容词， 这时后面才接用介词to。

4. Current assets are cash and other assets that -will be converted into cash or used up during the normal operating cycle of the business or one year , whichever is longer.

(1) 限制性定语从句thatwill be converted …or used up…修饰全句的表语cash and other assets中的other assets。

(2)这一从句中还包含一个非限制性的定语从句whichever  is longer,修饰 the normal operating cycle of the business or one year。

 5. Long-term assets are relatively long-lived assets used in operating an organization and may be further classified into fixed assets, or plant and equipment, and intangible assets.

(1)简单句型。连词and连接两个并列的谓语：are…and  may be…

(2)or"plant and equipment”是 fixed assets 的同位语。

(3)修饰relatively long-lived assets 的过去分词短语 used in operating the business中，介词in的宾语是动名词短语operating an organization。

READING MATERIAL

FIELDS OF ACCOUNTING ACTIVITY

Accountants(会计人员) perform many diverse(多种多样的) services and are engaged in various types of employment .The three major fields of accounting activity (会计活动)are private accounting (私人企业会计)， public accounting (公众会计，注册会计师业务),and governmental accounting (政府会计).

More accountants are employed in private accounting than in any other field. Private employers of accountants include manufacturers, wholesalers, retailers, and service, firms. In many large companies, the head of the accounting department is called the financial executives.

The field of public accounting is composed of firms (事务所)that render independent, expert reports on financial statements of business enterprises. Public accounting firms(会计师事务所)also perform a wide variety of accounting and managerial services, acting as consultants (顾问) of their clients. Most accountants in a public accounting firm are certified public accountants {CPAs 注册会计师).

A large number of accountants are employed by federal(联邦),state (州)and local (地方) government The services performed by these accountants parallel those of private and public accountants and may cover the entirespectrum(范围)of financial and managerial accounting.

LESSON THREE LIABILITIES AND OWNERS’EQUITY SECTION OF BALANCE SHEET

Liabilities, or creditors，equity, are the obligations，or debts, that the firm must pay in money or services at some time in the future. They therefore represent creditors’ claim on an organization’s assets and are listed in the order that they come due. Current liabilities are those obligations that require to pay within the normal operating cycle or one year, whichever is longer，by the use of existing current assets or the creation of the other current liabilities. Examples of current liabilities include accounts payable, accrued wages and salaries payable, sales and excise taxes payable, income or property taxes payable, and short-term notes payable, dividends payable, estimated or accrued liabilities, the various payroll taxes liabilities and the portion of long-term debt due within one year (or the operating cycle, if longer). Also, it is customary to include in this category any amounts an organization has received from customers but has not yet earned as revenue. Generally speaking, current liabilities should be measured and shown in the balance sheet at the money amount necessary to satisfy the obligation.

Long-term liabilities are those amounts of debts not due for a relative long time, typically more than one year. Long-term notes, mortgages, and bonds payable are a few examples. Douglas Company has had no long-term debts when its balance sheet was prepared on January 31,20X0.

The owners，equity is referred to as the net assets of the business, which is defined as the difference between the assets and liabilities. Thus, owners，equity is a residual claim-a claim to the assets remaining after the debt to creditors has been discharged.

The principal differences in the balance sheets for the three forms of business organizations—the single proprietorship, the partnership and the corporation--appear in the owners，equity section. Corporation laws in many countries require that corporations segregate, in their balance sheets, the capital stock (owners，investment) and any retained earnings. Because there are no comparable legal restrictions on sole proprietorships and partnerships, these forms of organizations do not have to distinguish between amounts invested by owners and undistributed earnings.

The owners may from time to time withdraw money or property from the organization for personal use or to engage in other business activities. Such withdrawals reduce both the assets and the owners’ equity of the organization. In sole proprietorships and partnerships, withdrawals are made quite informally at the owners，discretion; in corporations，withdrawals must be accomplished more formally. The board of directors, elected by stockholders, must meet and "declare a dividend"，before a distribution can be made to the stockholders. Declaration of dividends reduces the retained earnings portion of the owners, equity of the corporation and creates a liability called Dividends Payable. Payment of the dividend eliminates the liability and reduces assets (usually cash).

New Words, Phrases and Special Terms

Notes to the Text

1.Liabilities, or creditors’ equity, are the obligations, or debts, that the firm must pay in money or services at some time in the future.

(1)or creditors’ equity 是句中主语liabilities 的同位语，or debts 是表语the obligations的同位语。

(2)关系代词that引导的限制性定语从句，修饰the  obligations。

2. The owners’ equity is referred to as the net assets of the business, which is defined as the difference between the assets and the liabilities.

修饰the net assets的定语从句是非限制性的。非限制性定语从句常用关系代词which引导，从句前并加逗号“，”。

3.State corporation laws require that corporations segregate，in their balance sheets, the capital stock (owners’ investment) and any retained earnings.主句谓语动词require的宾语是用连词that引导的从句。从句中的谓语动词segregate属祈使语气(参见第一课注释4)。

4. Because there are no comparable legal restrictions on sole proprietorships and partnerships, these types of businesses do not have to distinguish between amounts invested by owners and undistributed earnings.

(1)全句包含一个用连词because引导的原因状语从句。

(2)在两件事物间作出区分时，如distinguish作为不及物动词，其后常接用介词between(如句中)；如作为及物动词，则要写成“distinguish…from…”，以本句为例，这一不定式短语也可写成to distinguish undistributed earnings from amounts invested by owners.

5.The board of directors, elected by the stockholders，must meet and “declare a dividend" before a distribution can be made to the stockholders.

(1)全句包含一个用连词before引导的时间状语从句。

(2)过去分词短语elected by the stockholders修饰主句主语the board of directors,因是非限制性定语，故用逗号“，”分开。

READING MATERIAL

THE STATEMENT OF OWNERS' EQUITY

In the sole proprietorships and partnerships, a statement of owners’ equity(业主权益表)is frequently prepared to accompany the balance sheet and income statement. This is simply a summary of the changes in the owners’ capital balance during the accounting period. The following exhibit shows this type of statement for Douglas Trading Company. Note that the ending balance on this statement agrees with the owners’ capital balance on the balance sheet at Jan. 31，20X0.

This statement further demonstrates the relationship between the income statement and the balance sheet. The net income (or net loss) for a period in the income statement (see Lesson Four) is an input(投人数额) into the statement of owners’ equity，while the ending owners’ equity balance on this statement is an input into the balance sheet at the end of the period.

LESSON FOUR INCOME STATEMENT

Income Statement is designed to portray the operating results for a period of time. Exhibit 4-1 is the income statement of Douglas Trading Company for the month ended January 31,20X0.

The major categories of the income statement for a merchandising company are revenue, cost of goods sold and operating expenses. In the revenue section, sales returns and allowances and sales discounts are deducted from the gross sales to yield net sales. The cost of goods sold is obtained by adding the beginning inventory and net purchases and deducting the ending inventory. To calculate net purchases, we deduct purchases returns, allowances and discounts from the purchases amount and add transportation costs of purchased goods. By deducting the cost of goods sold from the net sales，we arrive at an intermediate amount called gross profit on sales. The operating expenses are then deducted from the gross profit on sales to obtain the net income for the period.

The operating expenses of a merchandising business are typically classified into selling and administrative expenses. Some business items affecting the determination of a final net income amount may not relate to the primary operating activity of the business. Interest income and interest expense, for example, may be viewed as relating more to financing and investing activities than to merchandising efforts. They are often shown in a separate category called “Financial Income and Expense” at the bottom of the income statement. Likewise，any extraordinary items, such as catastrophic loss from an earthquake, will be shown in a separate “Extraordinary Items”category before the final net income amount is figured. Douglas Trading Company had no transactions or events to list in either of these categories on its income statement.

Operating results summarized by the income statement will be reflected in the owners’ equity section on the balance sheet at the end of that period. For yearly financial statements, the complementary relationship might be shown graphically as follows：

Dec. 31,20X0            Year 20X1                  Dec. 31, 20X1         Year 20X2              Dec. 31,20X2

The financial statements illustrated in this text are all prepared on the accrual basis.

New Words, Phrases and Special Terms

Notes to the Text

1.Interest income and interest expense, for example, may be viewed as relating more to financing and investing activities than to merchandising efforts.

(1)for example 是插入语。

(2)作为介语as的宾语的动名词短语relating more to…than to…,用more…than连接起来，形成对比结构。relate后要接用介词to.

2. Likewise, any extraordinary items, such as catastrophic loss from an earthquake，will be shown in a separate "Extraordinary Items”category before the final net income amount is figured.

(1)全句包含一个用连词before引导的时间状语从句。

(2)such as catastrophic loss from an earthquake 是句中主语any extraordinary items 的同位语。

3. Operating results summarized by the income statement will be reflected in the owners’ equity on the balance sheet at the end of that period.

过去分词短语summarized by the income statement修饰句中主语operating results。

READING MATERIAL

WORKING CAPITAL AND SHORT - TERM LIQUIDITY ANALYSIS

A company’s short-term liquidity (短期偿债能力) refers to its ability to meet short-term obligations. The working capital (菅运资本)，which is the difference between a firm’s current assets and current liabilities，is a significant figure, because it represents the net current capital with which the firm conducts its operations. Insufficient working capital may prevent a firm from meeting its debts on time. Sometimes, when a company borrows using long-term notes or bonds, the lender requires the borrower to maintain a stipulated amount of working capital.

In analyzing a company’s short-term liquidity，we can calculate various working capital ratios. These ratios include：

Current Ratio(流动比率)=

This ratio is a measure of the firm’s ability to meet its current obligations on time and to have funds readily available for current operations. For many years，some short-term creditors have relied on a rule of thumb (拇指,法则，经验规律)that the current ratio for industrial companies should exceed 200%.

Sometimes analysts calculate the ratio between the liquid or“quick”，current assets and the current liabilities. The quick ratio may give a better picture than the current ratio of a company‘s ability to meet current debts. When taken together with the current ratio，it gives the analyst an idea of the influence of the inventory figure in the company’s working capital position.

Quick Ratio(速动比率)=

The inventory turnover ratio measures the average rate of speed inventories move through and out of company. Inventory turnover is computed as:

Inventory Turnover(存货周转率)=

Of course，a low inventory turnover can result from an overextended inventory position or from inadequate sales volume. For this reason，appraisal of inventory should be accompanied by scrutiny of the quick ratio and analysis of trends in both inventory and sales to find out what has occurred. Inventory turnover figures vary considerably from industry to industry, and analysts frequently compare a firm’s experience with industry averages.

The average collection period is used to determine the number of days it takes，on average to collect accounts (and notes) receivables. It is calculated as:

Average Collection Period(平均收账期)=

A rough rule of thumb sometimes used by credit agencies is that the average collection period should not exceed 1. 5 times the net credit period. With the figure in Douglas Company’s balance sheet on January 31，20X0 and the income statement for the month of January, 20X0 we get：

(1)Working capital= $ 202 000 — $ 79 000= $ 123 000

(2)Current ratio= = 2. 56 or 256%

(3)Quick ratio ==1.25 or 125%

(4) Inventory turnover==4.11 times

* the supposed amount of beginning inventory.

(5) Average collection period= X 365=24. 82 days

LESSON FIVE LEDGER ACCOUNTS

The necessary data for preparing the balance sheet and income statement are accumulated in five major categories of ledger accounts ：assets，liabilities, owners，equity, revenues and expenses. An account is simply a record of changes (increases and decreases) and balances in the value of a specific item. The rules of debit and credit applied to each of the five categories of accounts are：

(1)The terms debit and credit are used to describe the left-hand and right-hand sides of any "two-column” account.

(2)Increases in asset and expense accounts are debit entries, while increases in liability, ownersy’ equity and revenue accounts are credit entries.

(3)Decreases are logically recorded on the side opposite increases.

(4)The normal balance of any account appears on the side for recording increases.

These rules can be illustrated graphically as follows：

Under the double-entry bookkeeping system, the twofold effect of every transaction is recorded. Each business transaction should be analyzed into equal debits and credits. Usually the Bookkeeper is able to determine the appropriate accounts to be debited and credited by examining the source documents. For example, a scrutiny of the check stub from the rent payment would reveal the need for debiting Rent Expense and crediting cash.

As a means of formal recording, we shall use a set of journals, or records of original entry, in which business transactions are analyzed in terms of debits and credits and recorded in chronological order. After transactions have been journalized, the debits and credits in each journal entry are transcribed to the appropriate ledger accounts. This transcribing process is called posting to the ledger.

To facilitate the analysis of transactions and the formulation of journal entries, a chart of accounts is usually prepared. It is a listing of the titles and numbers of all accounts found in the general ledger, The account titles should be grouped by and in order of，the five major sections of the general ledger (assets, liabilities，owners’ equity, revenues，expenses). Exhibit 5-1 shows a chart of accounts for Douglas Trading Company.

As we see in the above chart of accounts, a single control account for accounts receivable and another for accounts payable are used in the general ledger. A large number of individual customer and creditor accounts will be maintained in separate subsidiary ledgers. Under this approach，the general ledger is kept to a more manageable size and there is a detailed record of transactions with individual customers and creditors respectively. Examples of other general ledger accounts that often have subsidiary ledgers are Inventory (in a perpetual inventory system), Equipment, and Buildings.

New Words, Phrases and Special Terms

Notes to the Text

1.Increases in asset and expense accounts are debit entries，while increases in liability, owners’equity and revenue accounts are credit entries.

用连词while连接的并列句。

2.As a means of formal recording，we shall use a set of journals，or records of original entry，in which business transactions are analyzed in terms of debits and credits and recorded in chronological order.

(1)介词短语As a means of…修饰全句。

(2)or records of original entry 是a set of journals 的同位语。

(3)全句包含一个非限制性定语从句in which business transactions are analyzed…and recorded…,修饰a set of journals.从句中,用and连接它的两个谓语are analyzed…and (are) recorded …。

READING MATERIAL

THE FORMS OF ACCOUNTS

The account is seen in several forms. In a manually maintained bookkeeping system, the “two-column” account form is often used.

(Account Title)Account No.    

Date		Description	Post. Ref.	Amount	Date		Description	Post. Ref.	Amount

Making an entry in an account consists of recording an amount in the “Amount" column to represent either an increase or a decrease in the account. Spaces are also provided for other types of information-the date of an entry, some memoranda explaining a particular entry, and a posting reference(过账备查，过账记号)(indicated by Post. Ref. ). The posting reference column is used for noting the records from which entries into this account may have been taken.

Another popular form is the “running balance” or“three-column" account(逐笔结计余额式或三栏式账户).

The running balance account contains all the information shown in the two-column account but also provides a balance after each transaction so that the account balance for any date during the period can be easily perceived. If the account balance becomes abnormal (for example，if we overdrew透支our bank balance，the balance of the cash account would be abnormal)，it should be placed in parentheses.

(Account Title)Account No.    

Date		Description	Post. Ref.	Date	Credit	Balance (Dr. or Cr.)

LESSON SIX JOURNALS

An accounting journal may be one of a group of special journals or it may be a general journal. The general journal is a relatively simple record in which any type of business transaction can be recorded. In contrast to the general journal, a special journal is designed to record a specific type of frequently occurring business transaction. Most firms use, in addition to a general journal，at least the following special journals：

Special Journal                  Specific Transactions to be Recorded

Sales Journal                     Sales on credit term

Cash Receipts Journal     Receipts of cash, including cash sales

Invoice Register                  Purchases of merchandise and other items

(Purchases Journal)               (supplies, fixed assets, etc.)on credit terms

Cash Disbursements        Payments of cash，including cash purchases

Journal

When special journals are used, only those transactions that do not occur often enough to warrant entry in a special journal are recorded in the general journal.

A major advantage of special journals is that their use permits a division of labor. Nevertheless，the most significant advantage of using special journals is the time saved in posting from the journals to the ledger. When a general journal is used，each entry must be posted separately to the general ledger. The tabular arrangement of i special journals，however, often permits all entries to a given account to be added and posted as a single aggregate posting. The I more the transactions that are involved，, the greater the savings in I posting time. This advantage will be apparent in the illustration given below：

New Words, Phrases and Special Terms

Notes to the Text

1.When special journals are used, only those transactions that do not occur often enough to warrant entry in a special journal are recorded in the general journal.

(1)全句包含一个用连词when引导的时间状语从句。

(2)定语从句that do not occur…journal 修饰主句主语those transactions. 关系代词that在从句中作主语。

(3)定语从句内，often enough + to warrant ...修饰从句的谓语动词do not occur。句子内带有enough(或too)这样的副词时，常接用不定式作其状语，这里的意思是：“要值得使用特种日记账来记录，那么，那些交易发生得还不够经常。”译成汉语时，通常写成：“那些交易发生得不够经常，因而不值得使用特种日记账来记录。”(参阅参考译文)

2. the more the transactions that are involved, the greater the savings in posting time.

(1) The more…the greater…(the+比较级形容词……the+比较级形容词……)表示对比的两件事成正比例地增减，这种结构比较特殊，可以把前面一段看作状语从句，修饰后面的整个主句。

(2)对比的两件事是the transactions that are involved 和the savings in posting time，在结构上是对等的，都是“用作主语的名词+定语”。定语从句that are involved 修饰the transactions，介词短语in posting time 修饰the savings。

READING MATERIAL

STEPS IN THE ACCOUNTING CYCLE

The accounting cycle (会计循环)can be divided into the following steps：

1. Analyze transactions from source documents.
2. Record in journals.
3. Post to general (and subsidiary) ledger accounts.
4. Adjust the general ledger accounts.
5. Prepare financial statements.
6. Close temporary accounts (暂时性用户).

The various steps in the accounting cycle do not occur with equal frequency (频繁程度). Usually, analyzing, journalizing and posting (steps 1—3) take place during each operating period，whereas accounts are adjusted and statements are prepared only when management requires financial statements-usually at monthly or quarterly intervals, but at least annually. Temporary accounts are customarily closed only at the end of the accounting year.

Business firms whose accounting year ends on December 31 are said to be on a calendar-year(日历年度) basis. Many firms prefer to have their accounting year coincide with their “natural” business year;  thus the year ends when business is slow and inventory quantities are small and easier to count. At this time, end-of-year accounting procedures are most efficiently accomplished. An accounting year ending with a month other than December is called a fiscal year (财务年度).

LESSON SEVEN AN ILLUSTRATION

We shall list a few transactions to demonstrate how they are recorded in the several journals mentioned in Lesson Six. Pay attention to the credit terms involved in respective transactions. Note that cash discounts are calculated on the billed price of merchandise retained in a purchase or sale-not on amounts representing returns and allowances or transportation costs. As for transportation terms, the terms “prepaid” and “collect” designate the party expected to remit to the freight company. The party who is to bear transportation costs is designated by the terms “F. O. B. destination” (seller) and “F. 0. B. shipping point”(buyer).

20X0

New Words, Phrases and Special Terms

 

Notes to the Text

1.We shall list a few transactions to demonstrate how they are recorded in the several journals mentioned in Lesson Six.

(1)不定式复杂结构to demonstrate…用作表示目的的状语，修饰shall list a few transactions。

(2)由连接副词how引导的从句how they are recorded…是to demonstrate 的宾语。

(3)过去分词短语mentioned…修饰the several journals。

2. The party who is to bear transportation costs is designated by the terms "F. O. B. destination"(seller) and "F. O. R shipping point"(buyer).

(1)定语从句who is to…costs修饰全句主语the party。关系代词who在从句中作主语，故用主格。

(2)定语从句中的谓语is to bear…是"be+不定式” 结构，表示预先安排的即将发生的情况。

READING MATERIAL

STEPS IN A MERCHANDISE TRANSACTION

Whenever a transaction is initiated for the purchase or sale of merchandise, the buyer and the seller should agree on the price of the merchandise，the terms of payment, and which party is to bear the cost of transportation Most large businesses fill out a purchase order when ordering merchandise. A typical sequence of events is as follows：

(1)A request for a purchase，called a purchase requisition(请购单), is initiated by the person in charge of merchandise stock(存货)records whenever certain items are needed or when quantities of certain merchandise fall below established reorder points (再定货点).The requisition is forwarded to the purchasing department (购货部门).

(2)The purchasing department then prepares a purchase order(定货单)after consulting price list(价目表)，quotations(行情表)，or suppliers’ catalogs(供应商商品目录).The purchase order, addressed to the selected vendor (卖主)，indicates the quantity, description, and price of the merchandise ordered. It may also indicate expected terms of payment and arrangements for transportation, including payment of freight costs.

(3)After receiving the purchase order, the seller, upon shipment, makes out an invoice, which is forwarded to the purchaser. The invoice, called a sales invoice (销货发票)by the seller and a purchase invoice (购货发票) by the buyer, defines the terms of the transaction. A sample(样本)of invoice is shown in Exhibit 7-6.

(4)Upon receiving the shipment of merchandise，the purchaser’s (收货部门)counts and inspects the items in the shipment and makes out a receiving report(收货报告)detailing the quantities received.

(5)Before approving the invoice for payment, either the purchasing department or the accounts payable department compares copies of the purchase order, invoice, and receiving report to determine that quantities, descriptions，and prices are in agreement.

Although all the above papers-purchase requisition, purchase order, receiving report，and invoice-are source documents, only the invoice provides the basis for an entry in the purchaser’s accounting records. The other three documents are merely supporting documents. The purchaser makes no entries until the invoice is approved for payment. The seller enters the transaction in the records when the invoice is prepared, usually upon shipment of the merchandise.

LESSON EIGHT ADJUSTING PROCEDURES

Many of the business transactions affect the net income of more than one period. Clearly, if the income statement is to portray a realistic net income figure based upon accrual accounting, all revenues earned during the period and all expenses incurred must be shown. Therefore, it is often necessary to adjust some account balances at the end of each accounting period to achieve a proper matching of costs and expenses with revenue. The adjusting step occurs after the journals have been posted and a trial balance of ledger accounts has been taken，but before financial statements are prepared.

Adjusting entries made to align revenue and expense with the appropriate periods consist of four types：

1. Apportioning recorded costs to periods benefited.
2. Apportioning recorded revenue to periods in which it is earned.
3. Accruing unrecorded expenses.
4. Accruing unrecorded revenue.

Apportioning Recorded Costs   Many business outlays (such as purchases of buildings，equipment，and supplies and payments of insurance premiums covering a period of years) are made to benefit a number of accounting periods. At the end of each accounting period, the estimated portion of the outlay that has expired during the period or that has benefited the period must be transferred from an asset account to an expense account. In our Douglas Company illustration, these adjusting entries would be：

Apportioning Recorded Revenue   Sometimes a business (for example, a monthly magazine publisher) receives fees for services before service is rendered. The unearned revenue (here, a three- year subscription for $ 360) shows the obligation for performing future service and is often referred to as a deferred credit. Each month, 1/36 of the publisher’s obligation is fulfilled when magazines are supplied to the subscribers. We would transfer $ 10 from the liability account to a revenue account at the end of each month.

Unearned Subscription Revenue　10

　　Subscription Revenue　　　　　10

Accruing Unrecorded Expenses     Often a business will use certain services before paying for them. An obligation to pay for such services as salaries，utilities and taxes may build up or accrue over a period of time. It is necessary to make adjusting entries for such accrued expenses in order to reflect the proper cost in the period when the benefit was received. In our Douglas Company illustration, the adjusting entry for the salaries accrued is as follows：

Jan. 31 (d) To reflect the salaries to employees on services rendered but not paid on Jan. 31：

Sales Salaries Expense　　　　3 000

Office Salaries Expense　　　　1 000

　　Accrued Salaries Payable　　4 000

Accruing Unrecorded Revenue     Sometimes a company provides services during a period that are neither billed nor paid for by the end of the period. Yet the value of these services represents revenue earned by the firm and should be reflected in the firm’s income statement. Such accumulated revenue is often termed accrued revenue. The adjusting entry would be as follows：

Accrued Revenue　　　　　XXX

　　Service Fees Earned　　XXX

Merchandise Inventory Adjustment     Under a periodic inventory system, a firm determines its merchandise inventory only at the end of each accounting period and adjusts its records through the Income Summary account. For our Douglas Company example, the following adjusting entries are made.

New Words, Phrases and Special Terms

Notes to the Text

1.Clearly if the income statement is to portray a realistic net income figure based upon accrual accounting，all revenues earned during the period and all expenses incurred must be shown.

(1)全句包含一个用连词if引导的条件状语从句。

(2)英语中，副词如clearly，obviously等，常用在句首。这里,dearly=it is clear that.

2. The adjusting step occurs after the journals have been posted and a trial balance of ledger accounts has been taken，but before financial statements are prepared.

全句包含用连词but连接的两个时间状语从句:after和before…。

3. At the end of each accounting period, the estimated portion of the outlay that has expired during the period or that has benefited the period must be transferred from an asset account to an expense account.

用连词or连接的两个定语从句都用来修饰全句主语the estimated portion of the outlay。关系代词that在这两个定语从句中都用主语。

4. It is necessary to make adjusting entries for such accrued expenses in order to reflect the proper cost in the period when the benefit was received

(1)引词it作全句的形式主语，真正主语是不定式短语to make…expenses。

(2)不定式复杂结构in order to reflect…用作修饰全句的状语(表示目的)。

(3)这一不定式复杂结构中，包含一个修饰the  period的定语从句。它是用关系副词when引导的。

5. Sometimes a company provides services during a period that are neither billed nor paid for by the end of the period,

(1)定语从句that are…修饰全句谓语动词的宾语services。关系代词that是从句的主语。

(2)从句中两个并列的谓语动词are billed和(are) paid for,用连词neither…nor连接起来。

READING MATERIAL

ACCRUAL BASIS ACCOUNTING AND CASH BASIS ACCOUNTING

In firms that employ an accrual basis (权责发生制)accounting system revenue is recognized when earned rather than when cash is collected and expenses are recognized when goods and services are used rather than when they are paid for. The expenses incurred are matched with the relative revenue earned in order to determine a meaningful net income figure for each accounting period. Yet, certain businesses, principally service enterprises(服务业企业),often use a cash basis (收付实现制)mode of accountinng. In contrast to accrual basis accounting, the cash basis system does recognize revenues when money is received and expenses when money is paid .Cash basis accounting is used primarily because it can provide certain income tax benefits and because it is simple. However, cash basis financial statements may distort the portrayal of financial position and operating results of a business because the revenue and expenses for determining net income do not depend on the time period when cash is actually received or expended. Consequently, most business firms use the accrual basis of accounting.

LESSON NINE A WORKSHEET

Once the appropriate adjusting entries have been made and posted to the ledger accounts, an income statement and a balance sheet may be prepared directly from the account balances. In actual practice，however, many accountants find that drawing up a worksheet first facilitates the preparation of the statements. The worksheet presented is prepared after all transactions for January have been recorded and posted to the accounts of Douglas Trading Company. A trial balance is taken from the ledger accounts and listed in the first two columns of the worksheet. Adjustments enter on the worksheet directly. Then, the adjusted balances are extended into the income statement and balance sheet columns of the worksheet；they provide the data for formal financial statements.

Once the worksheet is completed, preparing the formal financial statements for the period is a simple matter. The income statement for January and the balance sheet on Jan. 31 prepared from the foregoing worksheet have already been presented in Lesson Four and Lesson Two.

A formal set of financial statements frequently includes a statement of owners’ equity (in the case of single proprietorships and partnerships). As for corporations，a statement of retained earnings would be included. The statement of owners’ equity simply lists the beginning balance，additions，deductions and ending balance of owners’ equity for the accounting period. When capital contributions have been made during the period，we cannot determine from the worksheet alone the beginning balance of owners’ capital and amounts of capital contributions during a period. Consequently, in preparing a statement of owners’ equity, we must examine the owners’ capital accounts in the general ledger. The statement of owner’s equity of Douglas Trading Company for the month of January has been illustrated in the Reading Material of Lesson Three.

When interim (monthly or quarterly) financial statements are being prepared, usually adjustments are made only on the worksheet and will not be recorded in the journal and posted to the ledger accounts. At the close of the calendar or fiscal year, however，the necessary adjusting entries must be recorded in the general journal and posted to the ledger accounts in order to accomplish the proper closing procedures.

New Words, Phrases and Special Terms

Notes to the Text

1. In actual practice, however，many accountants find that drawing up a worksheet first facilitates the preparation of the statements.

(1)句首的介词短语in actual practice修饰全句谓语find that…。

(2)全句谓语动词find的宾语是用连词that引导的从句。

(3)宾语从句中的主语是动名词短语drawing up a worksheet first。

2. Then, the adjusted balances are extended into the income statement and balance sheet columns of the worksheet; they provide the data for formal financial statements.

分号“;”可以用来把两个意义上有一定联系的句子连接在一起。

3. When interim financial statements are being prepared，usually adjustments are made only on the worksheet and will not be recorded in the journal and posted to the ledger accounts.

(1)全句包含一个用连词when引导的时间状语从句。从句中的谓语动词are being prepared系现在进行时态的被动语态形式。现在进行时态有时用来代替一般现在时态，表示经常性的动作或情况。

(2)主句中，第一个连词and连接并列的谓语are made…和will not be recorded…and posted…，第二个连词and 是连接recorded 和posted的。亦即,recorded 与posted并列，are made 和will not be recorded…and posted…并列。

READING MATERIAL

THE TRIAL BALANCE

The trial balance is a list of the account titles in the ledger with their respective debit and credit balances. It is prepared at the close of an accounting period after transactions have been recorded. It should be dated. The two main reasons for preparing a trial balance are： 

(1)to serve as an interim mechanical check (中间性的手工操作检查) to determine if the debits and credits in the general ledger are equal.

(2) to show all general ledger account balances on one concise record. This is often convenient when preparing financial statements.

It is always reassuring, of course, when a trial balance does balance. Even when a trial balance is in balance, however, there still may be errors in the accounting records. Among these errors are：

1. failing to record or enter a particular transaction.
2. entering a transaction more than once.
3. entering one or more amounts in the wrong accounts.
4. making a compensating error that exactly offsets the effect of another error.

Thus, a balanced trial balance simply proves that, as recorded, the debits equal the credits. When a trial balance is out of balance, it is necessary to search for errors.

LESSON TEN CLOSING PROCEDURES

Revenue and expense accounts are temporary accounts used to accumulate data related to a specific accounting year. These temporary accounts are maintained to facilitate preparation of the income statement. At the end of each accounting year，these temporary accounts will be closed. Their balances are transferred to the Income Summary account. Here we use Douglas Company’s January data for illustration, though actually temporary accounts are not closed monthly.

(g)To close Sales and related accounts and transfer net sales to the Income Summary account

(h)To close Purchases and related accounts and transfer net purchases cost to the Income Summary account.

(i) To close operating expense accounts to the Income Summary account.

At this point, the balance of the Income Summary is a credit equal to the net income of $ 36 000. The closing procedure is completed by closing the Income Summary and K. Douglas, Drawing accounts to the K. Douglas, Capital account.

In the case of a corporation, the Income Summary account will be closed to the Retained Earnings account, which is kept separately from the Capital Stock account.

A post-closing trial balance is usually taken after the closing process. This procedure assures that an equality of debits and credits has been maintained throughout the adjusting and closing process.

In practice, it is desirable to make reversing entries at the beginning of next accounting period to eliminate the accrued amounts of the respective expense and revenue items. The method of reversing adjustments made for accruals is an expedient to permit normal recording of subsequent payments or receipts. Since there is no accrued revenue item in our Douglas Company illustration, the reversing entry that would be made is only for the accrued salaries.

Feb. 1 Accrued Salaries Payable　　4 000

　　　　　Sales Salaries Expense　　3 000

　　　　　Office Salaries Expense　　1 000

New Words, Phrases and Special Terms

Notes to the Text

1. In the case of a corporation，the Income Summary account will be closed to the Retained Earnings account, which is kept separately from the Capital Stock account.

(1)介词短语In the case of a corporation 修饰全句。

(2)修饰the Retained Earnings account 的定语从句which is kept…是非限制性的。

READING MATERIAL

AUTOMATED DATA PROCESSING

We are already familiar with the manner in which accounting data processing is accomplished in a manual recordkeeping system. Source documents are prepared and entered manually；classification and sorting (分类整理)are accomplished through journals and ledgers；computations are often done manually; and storage (存储)is achieved by manual filing (手工归档).Storage is in the form of ledger accounts, subsidiary ledgers and various files. Retrieval (追溯) and summarization are entirely manual. Now we wish to examine the points in the accounting process where machines can be used to save labor.

The first way to speed processing and reduce workloads in manual processing is to introduce key-driven equipment (键盘式装置设备),such as adding machines (加法机)，calculators (计算器)and bookkeeping machines (簿记机).Some of these devices afford only limited data storage during arithmetical calculations; so that practically all storage, retrieval and summarization of data must still be performed manually. Certain bookkeeping machines, however, have auxiliary equipment (辅助设备)，such as punched card (穿孔卡)and paper tape output (纸带输出)，that allows data to be stored for further processing.

An electronic data processing (EDP) system (电子数据处理系统)can handle many of the basic recordkeeping functions at incredible speeds. Moreover, much of the processing is continuous；because of the logic(逻辑判断的)or decision-making, capabilities of the computer, human intervention is minimized. Detailed planning and complex programming (程序编制), however, are required initially to prepare for each phase of information processing.

An electronic data processing system contains the following elements：

1. A central processing unit (CPU)(中央处理单元)often called the computer (电子计算机，电脑)，which performs arithmetic, logic，storage of data while processing and control.
2. Associated peripheral equipment (边缘设备)including data-preparation (数据准备),input (输人)and output (输出)devices.
3. Personal and programs (程序)to provide instruction (指令)for the computer.
4. Procedures to coordinate the preparation and processing of data and the reporting of results.

The computer and associated equipment are often referred to as the hardware (硬件)of the system, while the programs, written procedures and other documentation for the system are called software (软件).

The various systems of automated data processing (自动数据处理) can be very detailed and complex. Here, we only provide some of the basic concepts.

LESSON ELEVEN CASH CONTROL

In accounting, the term cash means paper money，coins, checks，money orders and bank deposits—all items that are acceptable for deposit in a bank. IOUs, postdated checks (checks dated in the future) and uncollected customers’ checks returned by the bank stamped “NSF”(not sufficient funds) are not considered cash are normally classified as receivables. Notes sent to the bank for collection remain classified as notes receivable until notification of collection is received from the bank.

It is especially necessary to control the handling and recording of cash because it is so susceptible to misappropriation. An adequate system of internal control over cash would include the following features：

1. Cash is handled separately from the recording of cash transactions.
2. The work and responsibilities of cash handling and recording are divided in such a way that errors are readily disclosed and the possibility of irregularities is reduced.
3. All cash receipts are deposited intact in the bank each day.
4. All major disbursements are made by check and an imprest (fixed amount) fund is used for petty cash disbursements.

Observing the last two features permits a company to establish a double record of cash transactions. One record is generated by the firms' recordkeeping procedures and another is furnished by the bank. Control is provided by comparing the two records and accounting for any differences. This important procedure is called reconciling the bank statement with the book record of cash transactions or simply making a bank reconciliation.

Most business firms find it inconvenient and expensive to write checks for small expenditures. These expenditures are usually handled by establishing a petty cash fund. Control can be maintained by handling the fund on an imprest basis and by following certain well established procedures. Although expenditures from an imprest petty cash fund are made in currency and coin, the fund is established or increased by writing a check against the general bank account. After reviewing expenditures, replenishments are also accomplished by issuing checks. Therefore, in the final analysis, all expenditures are actually controlled by check.

Assume that A company has decided to establish a petty cash fund of $ 100. The entry reflecting establishment of the fund would be made in the cash disbursements journal：

Petty Cash　　　　100

　　Cash in Bank　　　100

When the fund must be replenished, a check is drawn to petty cash in an amount that will bring the cash value of the fund back to $ 100. For example, assume that A company’s fund has been drawn down to $21 and that analysis of the $79 in bills and receipts reveals the following expenditures：Office Expense $ 45; Transportation In $ 26；Postage Expense $ 8. The entry of replenishment made in the cash disbursements journal would be：

Office Expense　　　45

Transportation In　　26

Postage Expense　　8

　　Cash in Bank 　　　79

New Words, Phrases and Special Terms

Notes to the Text

1. Notes sent to the bank for collection remain classified as notes receivable until notification of collection is received from the bank. 

(1)过去分词短语sent to the bank for collection修饰全句主语notes。

(2)remain是联系动词，过去分词短语classified as notes receivable 在主句中作表语。

(3)全句包含一个以连词until引导的时间状语从句。

2. It is especially necessary to control the handling and recording of cash because it is so susceptible to misappropriation.

(1)引词it是主句的形式主语，真正主语是不定式短语to control…cash。

(2)handling和recording是名词化动名词，介词短语of cash作其定语。

(3)全句包含一个由because引导的原因状语从句。

3. The work and responsibilities of cash handling and recording are divided in such a way that errors are readily disclosed and the possibility of irregularities is reduced.

(1)全句包含一个用such…that引导的结果状语从句，such修饰a way，that作连词。

(2)这一状语从句是并列结构，用连词and连接两个并列的分句。

4. Most business firms find it inconvenient and expensive to write checks for small expenditures.

句中谓语动词find的复合宾语中，作宾语的是不定式短语to write…, 补语则是形容词inconvenient and expensive，当用短语或从句作复合宾语中的宾语时，通常要用it代替它，而把这一短语或从句放到句子后部去。

READING MATERIAL

THE NATURE OF INTERNAL CONTROL

Internal control has been defined as：

The plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its assets, check accuracy and reliability of its accounting data, promote operational efficiency(经营效率) and courage adherence to prescribed managerial policies (规定的管理方针).

Sometimes the organization, planning and procedures for safeguarding assets and the reliability of financial records are known as accounting controls(会计控制).The procedures and methods concerned mainly with operational efficiency and managerial policies are called administrative control(管理控制). Accountants should be conversant with both accounting controls and administrative controls. Indeed, many controls within these two categories are interrelated. Naturally, an accountant is more directly concerned with accounting controls.

The requirements for good internal accounting control are as follows：

(1) Competent personnel (称职的人员).

(2) Assignment of responsibility (分派责任).

(3)Division of work.

(4) Separation of accountability (会计责任)from custodianship (保管工作).

(5)Adequate records and equipment.

(6) Rotation of personnel.

(7)Internal auditing (内部审计).

(8)Physical protection (实物保护)of assets.

LESSON TWELVE A BANK RECONCILIATION

When a checking account is opened at a bank，the bank will submit monthly statements to the depositor showing the beginning cash balance, all additions and deductions for the month and the ending cash balance. In addition, the bank will return the paid checks for the month, together with “advice” slips indicating other charges and credits made to the account. We show a relatively simple bank statement below(see Exhibit 12-1).

Almost invariably，the ending balance on the bank statement differs from the balance in the company’s Cash in Bank account. Some reasons for differences are：

(1)    Outstanding checks-checks written and deducted in arriving at the book balance，but not yet presented to the bank for payment

(2)    Deposits not yet credited by the bank-deposits made near the end of the month, processed by the bank after the monthly statement has been prepared. They will appear on next month’s statement.

(3)    Charges made by the bank but not yet reflected on the depositor's books-for example, service and collection charges, NSF checks, repayments of depositor’s bank loans.

(4)    Credits made by the bank but not yet reflected on the depositor's books-collections of notes and drafts for the depositor by the bank.

(5)    Accounting errors made either by the depositor or by the bank.

The bank reconciliation consists of a schedule to account for any of the above differences between the bank statement balance and the book balance. Ordinarily, neither balance represents the cash balance to be shown on the balance sheet. Both are reconciled to an adjusted balance, which will appear on the balance sheet and is the amount that could be withdrawn after all outstanding items have cleared.

A convenient reconciliation form is illustrated below：

If these final amounts do not agree, one should look carefully for reconciling items omitted from the schedule or for possible errors in recordkeeping.

The bank reconciliation is made not only to bring to light transactions that must be recorded，but also to detect errors or irregularities.

Before financial statements are prepared, adjusting entries should be made to bring the Cash account balance into agreement with the correct cash balance shown on the reconciliation. The entries would reflect the collection of the notes receivable and the related collection expenses，reclassification of the NSF (not sufficient funds) checks as accounts receivable and the bank service charge for the month. In our illustration：

New Words, Phrases and Special Terms

Notes to the Text

1.      Both are reconciled to an adjusted balance, which will appear on the balance sheet and is the amount that could be withdrawn after all outstanding items have cleared.

(1)    全句包含一个非限制性的定语从句，which will appear…and is…, 修饰an adjusted balance。关系代词which在从句中作主语，从句的并列谓语用连词and连接起来。

(2)    在并列谓语的后半段isthe amount that…中，又包含一个以关系代词that引导的定语从句，修饰the amount。

(3)    在这一定语从句中，还包含一个用连词after引导的时间状语从句。

2.      The bank reconciliation is made not only to bring to light transactions that must be recorded but also to detect errors or irregularities.

(1)    not only…but also…连接两个不定式结构。谓语动词is made系被动语态。这种被动结构的句型，实际上是把主动结构句型中复合宾语内的宾语变为主语，补语则保持不动而转换成的。

(2)    两个不定式结构中，第一个是复杂结构，其中包含一个修饰不定式to bring to light的宾语transactions的定语从句；第二个是简单结结构，即不定式短语。

READING MATERIAL

THE BANK STATEMENT

In Exhibit 12-1 we show a relatively simple bank statement. Most bank statements list checks paid and other debits in the left-hand section, deposits and other credits in the middle section and cumulative balances (累计余额)in the right-hand section. Code letters (代号字母)are used to identify charges and credits not related to paying checks or making deposits. A legend usually appears at the bottom of the statement explaining the code letters. Although such codes are not standardized from bank to bank，those normally used are easy to understand. In the statement illustrated, the codes used are as follows:

EC--Error correction. Identifies transcription, arithmetic, similar errors and corrections made by the bank.

LS--List of checks. Identifies the total of a batch of checks too numerous to list separately on the statement An adding machine tape listing the individual check amounts usually accompanies each batch of checks listed.

DM--Debit memo. Identifies collection charges, repayment of bank loans, and other special charges made by the bank against the depositor’s account.

SC--Service charge. Identifies the amount charged by the bank for servicing the account. The amount is normally based on the average balance maintained and the number of items processed during the month. Service charges are usually made on small accounts that are not otherwise profitable for the bank to handle.

OD--Overdraft. Indicates a negative or credit, balance in the account.

RT--Returned items. Indicates defective items such as postdated checks or checks without proper endorsement (背书)received from customers and deposited. Sometimes not sufficient fund (NSF) checks charged back to the account are identified with these letters in the statement. NSF checks may also be identified with the letters DM, explained earlier.

In the bank statement illustrated, we see that：

(1)    On December 3, a NSF check $135. 40 charged back to the account is identified by the code letters RT.

(2)    On December 4, the collection charge $0. 50 for a $ 200 note collected by the bank is identified by the code letters DM.

(3)    On December 31，the service charge $5. 00 for the month is identified by the code letters SC.

LESSON THIRTEEN VOUCHER SYSTEM

Many companies employ a method of controlling expenditures that is known as the voucher system. Under this system, a written authorization form, called a voucher, is initiated for every disbursement the firm makes. Before the designated responsible official approves the voucher for payment, several verification steps must be performed by different employees. These include the following (for the purchase of merchandise)：

(1)    Comparison of purchase order, invoice and receiving report for agreement of quantities, prices, type of goods, and credit terms.

(2)    Verification of extensions and footings on invoice.

(3)    Approval of account distribution (items to be debited).

A voucher form is illustrated in Exhibit 13-1. The original copies of the purchase order, invoice and receiving report should be attached to the voucher. The voucher is then recorded in a book of original entry called the voucher register, which replaces the purchases journal (invoice register) we illustrate in Lesson Seven. A simple form of voucher register is provided in Exhibit 13-2. The entries recorded are from the same transactions given in Lesson Seven (with voucher # 1007 added in).

Note that：

(1)    Since all expenditures are recorded in the voucher register whether the transaction is for cash or on account, the voucher register also substitutes for part of the cash disbursements journal illustrated in Lesson Seven.

(2)    The most formal method of processing purchases returns and allowances under a voucher system is to cancel the original voucher and issue a new one for the lower amount (see vouchers # 1016 and # 1019).

Vouchers are entered in the voucher register in sequence. Then they are filed in an unpaid vouchers file in the order of required date of payment. In this way, cash discounts will not be missed and the company's credit standing will not be impaired.

On the due date, the voucher is removed from the unpaid file and forwarded to the firm's disbursing officer for final approval of payment. After signing the voucher, this officer has a check drawn and mailed to the payee. To safeguard against irregularities, the voucher should not be handled again by those who prepared it, and the underlying documents should be cancelled or perforated under the control of the disbursing officer before the voucher is returned to the accounting department.

After a voucher is paid，the check number and payment date are entered in the appropriate columns of the voucher register. Therefore，it is easy to determine the total unpaid(“open”)vouchers at any time by adding the items in the vouchers payable column for which there is no entry in the date paid and check number columns (see vouchers # 1026, # 1027, # 1028). This total should, of course, agree with the total of vouchers in the unpaid file and, at the end of the month, with the amount in the Vouchers Payable account.

After these procedures have been followed, the payment is recorded in a book of original entry called the check register, which is used in place of a cash disbursements journal. Finally, the vouchers are filed in numerical sequence in a “paid” vouchers file.

 New Words, Phrases and Special Terms

1. authorization(n.)      授权
2. voucher system       应付凭单制
3. approve (v. t.)           批准
4. verification(n.)          验证
5. extension(n.)           算出或转来的金额
6. footing(n.)                 总计，总额
7. purchase order       定货单，定购单
8. receiving report       收货报告，收货单
9. voucher register      应付凭单登记簿
10. replace(v.t.)              取代
11. sundry items           其他项目
12. in sequence            按顺序，依次
13. credit standing        信用地位，信誉
14. perforate(v.t.)           穿孔于
15. in place of                代替

Notes to the Text

1. The voucher is then recorded in a book of original entry called the voucher register, which replaces the purchases journal we illustrate in Lesson Seven.

(1)非限制性定语从句which  replaces…修饰voucher register。

(2)在这一定语从句中，还包含一个修饰purchases   journal 的定语从句(that)we illustrate…,关系代词that因在从句中作谓语动词illustrate的宾语,可省略。

2. Since all expenditures are recorded in the voucher register whether the transaction is for cash or on account，the voucher register also substitutes for part of the cash disbursements journal illustrated in Lesson Seven.

(1)全句包含一个用连词since引导的原因状语从句。

(2)在这一状语从句中，还包含一个用连词whether引导的条件状语从句。

(3)过去分词短语illustrated in…修饰the cash disbursements journal。

3. To safeguard against irregularities，the voucher should not be handled again by those who prepared it, and the underlying documents should be cancelled or perforated under the control of the disbursing officer before the voucher is returned to the accounting department.

(1)    用连词and连接的并列句。不定式短语to safeguard against irregularities表示目的，修饰全句。

(2)    在前一个并列分句中，包含一个修饰those的定语从句who  prepared it。

(3)    在后一个并列分句中，包含一个由连词before引导的时间状语从句。

4. Therefore, it is easy to determine the total unpaid (“open”) vouchers at any time by adding the items in the Vouchers Payable column for which there is no entry in the date paid and check number columns.

(1)    全句中,it是形式主语，真正主语是不定式复杂结构to determine…。

(2)    在这一不定式复杂结构中，包含一个用介词引导的复杂结构by adding…，其中介词by的宾语是动名词复杂结构adding the items in…。

(3)    在这一动名词复杂结构中，包含一个修饰the  items的定语从句。关系代词which在从句中作介词for的宾语。

READING MATERIAL

INTERNAL CONTROL IN OTHER AREAS

While it is vitally important to establish effective controls over the handling of and accounting for cash, control should also be provided for other activities of the firm. As in the case of cash, most controls are designed to separate the authorization of a transaction from the accounting for the transaction and the custody of any related assets. For example, the purchase and sale of securities normally require authorization by a company’s board of directors, and officers who have access (接近)to the securities should not have access to the accounting records. Other personnel should record security transactions and keep a record of security certificates by certificate number and amount.

Similarly, in the case of inventories, store(仓库) clerks handling inventory items should not have access to inventory records and should be separated from receiving departments and the processing of accounts payable. Similar controls should be exercised over receivables, long-term assets，payroll(工薪)transactions, and every other fact of business activity.

The subject of internal control is quite complex. Both external and internal auditors(审计员) devote a great deal of attention to internal control In analyzing an accounting system and preparing audits.

LESSON FOURTEEN LOSSES FROM UNCOLLECTIBLE ACCOUNTS

Few firms that extend credit to customers are immune to credit losses. Credit losses are regarded as operating expenses of the business and are debited to an appropriately titled account such as Uncollectible Accounts Expense. Other account titles frequently used are Loss from Uncollectible Accounts，Loss from Doubtful Accounts or Bad Debts Expense. Normally, the expense is classified as a selling expense on the income statement, although some companies may include it with administrative expenses.

There are two acceptable methods for recognizing losses from uncollectible accounts. One is called the direct write-off method. Under this method, bad accounts are charged to expense in the period when they are discovered to be uncollectible. The other method, which is preferable, is called the allowance method. This procedure not only matches credit losses with related revenue, but also results in an estimated realizable amount for accounts receivable in the balance sheet at the end of the period. The estimate is introduced into the accounts by means of an adjusting entry.

Estimates of credit losses are generally based on past experience, with due consideration given to forecasts of sales activity, economic conditions and planned changes in credit policy. The most commonly used calculations are related either to credit sales for the period or to the amount of accounts receivable at the close of the period.

Estimates Related to Credit Sales Suppose that credit sales for a period amount to $ 20 000 and that past experience indicates a loss of 1. 5%. The adjusting entry to provide for expected losses would be：

Dec. 31　Uncollectible Accounts Expense　　　　300

　　　　　　Allowance for Uncollectible Accounts　　　300

Estimates Related to Accounts Receivable    A company’s experience may show that at the end of a period a certain percentage of Accounts Receivable is likely to prove uncollectible. The credit balance in the allowance account should be equal to this amount. Therefore the company may simply derive the adjustment for uncollectibles as the amount needed to create the desired credit balance in the allowance account. Suppose that a particular company estimates uncollectibles as 5% of Accounts Receivable and that the Accounts Receivable balance at the end of an accounting period is $ 5 000. Therefore, the credit balance desired in the allowance account is $ 250. If the allowance account already has a residual credit balance of $ 40，the amount of the adjustment will be $ 210.

Instead of using a fixed percentage of the aggregate customer’s balances, some companies will determine the amount needed in the allowance account after analyzing the age structure of the account balances. In order to do this, they will prepare an aging schedule as follows：

Companies may analyze their bad accounts experience with the aged balances over time, and develop respective percentages of all strata that they think are likely to prove uncollectible. Applying the percentages to the totals in our aging schedule, we can calculate an allowance requirement of $ 156.

Again，if the allowance account had a residual credit balance of $ 40 the adjustment would be for $ 116.

Dec. 31　Uncollectible Accounts Expense　　　　　116

　　　　　　　Allowance for Uncollectible Accounts　　116

When a specific account is determined as uncollectible it would be written off through the allowance account.

Jan. 5　Allowance for Uncollectible Accounts　50

　　　　　　Accounts Receivable-M Wall　　　　50

Note that this entry to write off an account has no effect on net income or on total assets. The expense was reflected, by means of the adjusting entry, in the period when the related revenue was recorded. Furthermore, since the Allowance for Uncollectible Accounts is deducted from Accounts Receivable in the balance sheet, the net realizable amount of Accounts Receivable is not changed by the write-off.

New Words, Phrases and Special Terms

Notes to the Text

1. Under this method, bad accounts are charged to expense in the period when they are discovered to be uncollectible.

用关系副词when引导的定语从句，修饰the period。

2. Estimates of credit losses are generally based on past experience, with due consideration given to forecasts of sales activity，economic conditions and planned changes in credit policy.

with引导的介词短语中，due consideration given to…是复合宾语(过去分词短语given to…作补语)。with后加复合宾语，常用作状语说明方式，有时则是说明附带的情况(如句中)。

3. Companies may analyze their bad accounts experience with the aged balances over time and develop respective percentages of all strata that they think are likely to prove uncollectible.

(1)全句中，用and连接的并列谓语的后一部分develop…percentages …中，包含一个修饰percentages (of all strata)的定语从句that…uncollectible,关系代词that在从句中作主语。

(2)这一定语从句中还包含一个插入语they think。

READING MATERIAL       

TRADE RECEIVABLES AND PAYABLES

The terms trade receivables (应收账款)and trade payables (应付账款)usually refer to receivables and payables arising in regular course of the company’s transactions with customers and suppliers. Payments normally are to be made within 30 to 60 days. If an advance(预付款)is made to an employee or officer of the company, it should not be included here, nor should advances to affiliated companies (关联公司)，such as subsidiaries (子公司)，be included. Such receivables should be recorded in separate accounts. In many instances such receivables are not current, and as a result, these items are often seen in the balance sheet under a noncurrent heading as Other Assets. Advances to subsidiary companies are frequently semi-permanent, and they are found in the balance sheet under the Investments caption.

Likewise, trade accounts payable consist only of open(尚未偿付的) accounts owing to the purchase of merchandise or materials or to the acquisition of services from outsiders. Amounts that a firm owes for salaries and wages and for various types of taxes，sundry accruals，and so on are recorded in separate current liability accounts.

The principal reason for separating trade accounts from other receivables and payables is to facilitate analysis by both the management and outsiders.

LESSON FIFTEEN PROMISSORY NOTES

Promissory notes are often used inmerchandise and property transactions, particularly when the credit period is longer than the typical 30 or 60 days for open accounts. Occasionally, a note is substituted for an open account when an extension of the usual credit period is granted. In addition, promissory notes are normally executed when loans are obtained from banks and other parties.

A promissory note is a written promise to pay a certain sum of money on demand or at a fixed and determinable future time. The note is signed by the maker, and it is made payable either to the order of a specific payee or to the bearer. The note may be noninterest bearingor it may be interest bearing at an annual rate specified on the note. An interest-bearing promissory note is illustrated in Exhibit 15-1.

(A note held from a debtor is called a note receivable by the holder and a note payable by the debtor. A note is usually regarded as a stronger claim against a debtor than an open account because the terms of payment are specified in writing. Although open ac­counts can be sold (factored), it is much easier to convert a note to cash by discounting it at a bank.

Interest on notes is commonly paid at the maturity date of the obligation, except in certain discounting transactions. Occasional­ly,a business may prefer not to wait until the maturity date of a note receivable to obtain cash from the customer. Instead, it will endorse the note over to a bank, ‘‘discounting” the note and receiv­ing an amount equal to the maturity value of the note less the dis­count charged by the bank. By endorsing the note (unless it is endorsed  ”without recourse”), the business agrees to pay the note at the maturity date if the maker fails to pay it . Consequently, the note is a contingent liability of the endorser. The discount compu­tation and calculation of proceeds for a $ 4 000, 60-day, 9% note dated March 1 and discounted at 9% on March 31 is as follows：

The discounting transaction should be recorded as follows：

March 31　Cash　　　　　　　　　　　　　　4 029.55

　　　　　　　Interest Income　　　　　　　　　　　　　29. 55

　　　　　　　Notes Receivable Discounted　　　　　4 000. 00

The Notes Receivable Discounted account credited in the above entry is a contra account that is subtracted from the Notes Receiva­ble account in the balance sheet. Only the notes still held by the company are added to the current assets total. Some firms do not exhibit the Notes Receivable Discounted account in the balance sheet； instead, they show the notes still held, with a footnote to this item under the balance sheet indicating the contingent liability.

When the maker of a discounted note receivable pays the note at maturity, the discounting party (endorser) may then remove the note receivable amount and the contingent liability contra amount in Notes Receivable Discounted from its accounts. If the maker of a note receivable fails to pay it (dishonors it)at maturity, the bank will notify the endorsing party and charge the full amount owed, including interest, to the bank account of the endorser. In addi­tion, the bank may also charge a small fee called a protest fee. Two entries would be made by the endorser：

If the endorser failed in its efforts to collect the $ 4 065 from X Company, the account would be written off as uncollectible.

When a business borrows from a bank by giving its own note, the bank often deducts the interest in advance. With this type of transaction, a business is said to be “discounting its own note”. The entry to record this transaction would be：

Dec. 16 To discount our 60 day note at 9%：

　　　　　Cash　　　　　　　　　　　7880

　　　　　Discount on Notes Payable　　120

　　　　　　　　Notes Payable　　　　　　　8 000

Discount on Notes Payable is a contra account whose balance is subtractedfrom the Notes Payable amount on the balance sheet. As the time period for the note elapses, the discount is reduced and charged to Interest Expense. Thus, on December 31,after 15 days have elapsed, $ 30 would be charged to Interest Expense and credit to Discount on Notes Payable before the balance sheet is prepared.At the close of an accounting period, it is also necessary to make adjusting entries to reflect the accrued interest income on notes receivable held and accrued interest expense on notes payableoutstanding.

New Words, Phrases and Special Terms

Notes to the Text

1. Promissory notes are often used in merchandise and property transactions，particularly when the credit period is longer than the typical 30 or 60 days for open accounts.

(1)全句包含一个用连词when引导的时间状语从句。

(2)这一时间状语从句中,又包含一个用比较级形容词longer和由连词than引导的状语从句来表示对比。从句中的谓语可省略。即the credit period is longer than the typical 30 or 60 days for open accounts(is long),事实上，只需要掌握住对比两方在句中的对等地位,就能理解这种句型。

2. A note is usually regarded as a stronger claim against a debtor than an open account because the terms of payment are specified in writing.

(1)主句也属于比较结构，对比的是:A note和 an open account 哪一个是较强的要求权。由连词than引导的比较状语从句中的谓语(is regarded as a strong claim against a debtor)被省略了。

(2)全句还包含一个由连词because引导的原因状语从句。

READING MATERIAL

NOTES AND INTEREST IN FINANCIAL STATEMENTS

A business will show short-term trade notes receivable as current as­sets in the balance sheet, because they can normally be converted to cash fairly easily. These notes usually are placed above trade accounts receiva­ble. As with accounts receivable, it is best to separate notes from officers and employees and notes representing advances to affiliated companies from trade notes receivable. If such notes are not truly short-term in character， they should be classified under a heading other than current assets. Ac­crued interest receivable is normally shown with notes receivable.

Sometimes companies with a large volume of notes receivable find it necessary to provide for possible losses on notes. Frequently, the provision for credit losses is extended to cover losses on notes as well as on open ac­counts. In such cases, the Allowance for Uncollectible Accounts is deducted from the sum of Accounts Receivable and Notes Receivable in the balance sheet.

Trade notes payable and notes payable to banks are usually shown separately in the current liabilities section of the balance sheet. Accrued inter­est payable is normally shown with Notes Payable-often as an addition. Discount on Notes Payable is deducted from the related Notes Payable amount. The order in which current payables appear is less important than the sequence of current assets：however, Notes Payable customarily precedes Accounts Payable.

A current section of a balance sheet is shown below to illustrate the presentation of items discussed.

Because they are financial rather than operating items，we often separate Interest Expense and Interest Income from operating items in the in­come statement.As we see in the Exhibit 15-3, they frequently appear under the classification Financial Income and Expense. This type of presentation permits readers to make intercompany comparisons of operating results that are not influenced by financing patterns(理财方式) of the companies involved.

LESSON SIXTEEN INVENTORY MEASUREMENT

Proper income determination depends on the appropriate meas­urement of all assets； the higher the asset amounts, the higher the income that will be reported. Because inventories are often relative­ly large and their size fluctuates, it is important to account correct­ly for inventories if net income is to be determined properly. "Taking” an inventory consists of (1) counting the items involved, (2) pricing each item, and (3) summing the amounts. In general, in­ventories are priced at their cost. Inventory pricing is quite simple when acquisition prices remain constant. When prices for like items change during the accounting period, however, it is not always apparent which price should be used to measure the ending inventory. We shall introduce four generally acceptable methods of pricing in­ventories：

1. specific identification；
2. weighted average；
3. first-in, first-out；
4. last-in, first-out.

The specific identification approach to inventory most natural­ly fits operations that involve somewhat differentiated products of a relatively high unit value. New automobiles and construction equipment are good examples. Specific identification is not feasiblewhere products are of a low unit value and involve large volumes.

The weighted average approach to inventory measurement is best suited to operations that involve a large volume of undifferenti­ated goods stored in common areas. The weighted average cost re­presents to some degree all the various costs experienced in accu­mulating the goods currently on hand. Consequently, weighted average costs typically fall between the extreme cost figures that can result from other methods.

Most companies-especially those with perishable or style affected goods-as a matter of good business attempt to sell the oldest merchandise first. In these cases, FIFO most nearly matches the flow of costs to the probable flow of goods.

Although LIFO presents the least plausible flow of goods for most businesses, it is used only in U. S. A. by many major firms. When prices are rising, LIFO results in lower reported income and thus may provide a related tax benefit. LIFO bettermatches cur­rent costs against current revenues because the most recent purcha­ses are reflected as cost of goods sold. However, it consequently prices the ending inventory at the older, less realistic unit price. Because of this, the LIFO inventory figure on the balance sheet often becomes quite meaningless in terms of current cost prices.

The illustrations mentioned above are those under the periodic inventory system.

New Words, Phrases and Special Terms

Notes to the Text

1. Proper income determination depends on the appropriate measurement of all assets； the higher the asset amounts, the higher the income that will be reported.

(1)用分号“;”把两个在意义上有联系的句子连在一起。

(2)分号后面的一句是用 thehigher…the higher…连接的比较句型，对比的是the asset amounts 和 the income that will be reported.

(3)that引导的定语从句用来修饰the income.

2. When prices for like items change during the accounting period, however, it is not always apparent which price should be used to measure the ending inventory.

(1)全句包含一个用连词when引导的时间状语从句。

(2)主句中，引词it是形式主语，从句which price…是真正主语。which 是连接形容词。

3. Specific identification is not feasible where products are of a low unit value and involve large volumes.

(1)全句包含一个用连词where引导的地点(场合)状语从句。

(2)从句内，连词and连接两个并列的谓语：are of a low unit value和involve large volumes.

READING MATERIAL

ESTIMATING INVENTORIES

When interim financial statements are prepared, it may be impractical to take physical inventorycounts(实物盘点). An estimate will be sufficient. The gross profit method of estimating inventories (估计存货的毛利法)is usually employed.

Suppose that over the past three years a company’s gross profit averaged 30% of net sales. Assume also that the net sales for the interim period are $ 80 000，the inventory at the beginning of the period was $ 20 000， and net purchases for the period are $ 50 000. The following exhibit shows the analysis that can be made to estimate the ending inventory.

This type of analysis is merely a rearrangement of the cost of goods sold section of the income statement. For the gross profit method to be valid, the gross profit percentage must be representative of the merchandising activities leading up to the time when the inventory is estimated.

The second approach to estimating inventories is widely used by retailbusinesses(零售商店)，such as department stores(百货商店),that are likely to keep periodic inventory records. Such firms typically mark each item of merchandise with the retailprice(零售价格)and record purchases at both cost and retail price. A firm can estimate its ending inventory at retail price merely by subtracting sales from the retail price of merchandise available for sale. To determine the inventory cost, the firm will apply a cost-to- retail price percentage(成本对零售价比率). This percentage is the ratio of cost to retail price of merchandise available. In the following exhibit， this ratio is 70%，which, when applied to the $30 000 retail value of the inventory, yields a cost amount of $ 21 000.

The cost-to-retail price ratio can also be used to compute the cost of an actual physical inventory taken at retail prices. Thus, the firm saves the considerable effort and expense of determining individual cost prices for each item of the inventory.

The accuracy of the retail inventory method depends on the assumption that the ending inventory contains the same proportion of goods at the various mark-up(标价) percentages as did the original group of merchandise available for sale. To the extent that the mix(品种构成)of mark-up percentages does not remain constant, the accuracy of the estimate is impaired.

LESSON SEVENTEEN LONG-TERM ASSETS

Long-term assets, or fixed assets, are characterized by high economic values，many accounting periods，and a wide range of forms. They are usually classified into three major forms：constructed assets, natural assets，and intangible assets. The costs related to the use of long-term assets must be properly calculated and matched against the revenues the assets help generate. An important part of these costs is each period’s expired portion of the original outlay for an asset. Depending on the type of asset involved, this amount is called depreciation, depletion, or amortization, In Exhibit 17-1，we show an overall classification of long-term assets and the terms for their periodic write-off to expense.

The carrying values of long-term assets are normally based on historical costs. No attempt is made to reflect subsequent changes in market values. The initial cost of a long-term asset is equal to the cash and/or the cash equivalent of that which is given up in order to acquire the asset and to prepare it for use. With the exception of site land，the use of long-term assets to generate revenues tends to consume their economic potential. At some point of reduced potential，these assets are disposed of and possibly replaced. We can diagram the typical pattern of long-term asset utilization as follows：

The basic entry to record each period’s (say, each year’s) depreciation expense is (under straight-line method)：

Depreciation Expense　　　　　　　　　　180

　　Accumulated Depreciation-Equipment 　　180

As long as the asset is in service, the cumulative balance of depreciation taken is carried in the contra account, Accumulated Depreciation, which will be deducted from the related asset account on the balance sheet to compute the book value or carrying value of the asset. When an asset is disposed of，the related original cost and accumulated depreciation are removed from the accounts. The disposal entry would also reflect the gain or loss on sale or abandonment of the asset. Suppose that the equipment is sold at the end of the fifth year actually for $ 120，the disposal entry is：

Cash　　　　　　　　　　　　　　　　　120

Accumulated Depreciation-Equipment　　900

　　Equipment　　　　　　　　　　　　　　1000

　　Gain on Sale of Fixed Assets　　　　　　　20

To some extent, maintenance may partially arrest or offset the wear and deterioration of an asset. Quite logically, then, when useful life and salvage values are estimated, a given level of maintenance is assumed. Ordinarily, periodic upkeep (such as lubrication, cleaning, replacement of minor parts) is considered to maintain an asset’s capacity, and the costs for this are charged to expense as they are incurred. In contrast to routine or periodic maintenance, expenditures may be made for what are often termed extraordinary repairs or betterments. To the extent that betterments increase capacity or extend useful life, the related costs should not be currently expensed but should be capitalized or charged to the related asset’s accumulated depreciation account.

New Words, Phrases and Special Terms

Notes to the Text

1. The costs related to the use of long-term assets must be properly calculated and matched against the revenues the assets help generate.修饰the revenues的定语从句中，关系代词that由于在从句中作help generate 的宾语，被省略了。在help后，引导不定式的to仍可省略。

2. As long as the asset is in service，the cumulative balance of depreciation taken is carried in the contra account, Accumulated Depreciation, which will be deducted from the related asset account on the balance sheet to compute the book value or carrying value of the asset.

(1)全句包含一个用as long as引导的时间状语从句。

(2)主句内包含一个修饰the contra account的非限制性定语从句which will be deducted…。

(3)过去分词take是修饰depreciation 的；Accumulated Depreciation 是the contra account 的同位语,or carrying value是the book value 的同位语。

3. In contrast to routine or periodic maintenance, expenditures may be made for what are often termed extraordinary repairs or betterments.用连接代词what引导的从句，用作介词for的宾语。what在从句中作主语。

4. To the extent that betterments increase capacity or extend useful life，the related costs should not be currently expensed but should be capitalized or charged to the related asset’s accumulated depreciation account.

(1)介词to引导的复杂结构to the extent…life，修饰全句，其中包含一个用连词that引导的从句，作为the extent的同位语。从句中两个并列的谓语，increase…or extend…，是用连词or连接的。

(2)主句中，用连词but连接两个并列的谓语：should not be currently expensed but should be capitalized or charged to…;在but 以后的谓语中，又用or连接两个并列的谓语should be capitalized or (should be) charged to...。

READING MATERIAL

INTANGIBLE ASSETS

Examples of intangible assets include patents, copyrights, franchises, trademarks, organization costs(开办费)，and goodwill.

A patent is an exclusive privilege (专有权利)，granted by U. S. federal government for a period of 17 years, for the right to use a specific process or to make a specific product. Copyrights protect the owner against the unauthorized reproduction of a specific written work or a work of art. A copyright lasts for the life of the author plus 50 years. Franchises most often involve exclusive rights to operate or sell a specific brand(商标)of products in a given geographical area. Although many franchises are agreements between two private firms, various U. S. governmental units award franchises for public utility (公用事业) operations within their legal jurisdictions(法定管辖范围). Franchises may be for definite or indefinite periods of time. Trademarks represent the exclusive and continuing right to use certain terms, names, or symbols, usually to identify a brand or family (类属)of products.

Expenditures incurred in launching a business (usually a corporation) are called organization costs. Most firms amortize these costs over a five-to-ten-year period，although, strictly speaking, the expenditures benefit the firm throughout its operating life.

Goodwill is the value derived from a firm’s ability to earn more than a normal rate of return(正常盈利率)on its physical assets. Because measuring goodwill is difficult, a firm may record it in the accounts only when the amount paid to acquire(并购)a firm exceeds the recognized value (确认价值)of the other assets involved. Goodwill is considered to be an asset subject to amortisation for a relatively long period. The amortisation period varies from 10 to 20 and even to 40 years in different countries. Since the enforcement of FAS 142"Goodwill and Intangible Assets" in U. S. A. on June 30, 2000，this practice has been changed to recognize an impairment loss (减值损失)，only when the carrying amount of goodwill at the yearend exceeds its fair value.

Intangible assets acquired by a firm from outside entities should initially be recorded in the accounts at their cost. Similarly, some intangible assets created internally by a firm are measured at their cost. For example, the costs incurred to form a business are charged to Organization Costs and the costs to secure a trademark，such as attorney’s fees(律师事务费)，registration fees(注册费)and design costs(设计成本)are charged to the Trademark account.

LESSON EIGHTEEN DEPRECIATION METHODS

Depreciation can be caused by wear from use, natural deterioration through interaction of the elements and technical obsolescence. Many accountants contend that long-term assets are actually “bundles of services or utility” and that their rate of depreciation should be related in some way to the pattern in which these services are used to generate revenues. For many assets, particularly assets affected by rapid technological change，one can argue that the utility is more rapidly consumed in the earlier periods of useful life than in the later periods.

The most commonly used depreciation methods are：the straight-line method, the units-of-production method, the sum-of-the-year’s-digits (SYD) method and the double-declining-balance (DDB) method. The SYD method and the DDB method "accelerate" depreciation expense so that the amounts recognized in the earlier periods of an asset's useful life are greater than those recognized in the later periods.

Straight-line Method    Straight-line depreciation is probably the simplest to compute. An equal amount of depreciation expense is allocated to each full period of the asset’s useful life. Using straight-line depreciation,

which in our example (cf. the diagram in the previous lesson) is

This method of uniform allocation is best suited to assets whose periodic usage is relatively uniform and whose obsolescence factor is low. Examples include pipelines, storage tanks，fencing and surface paving.

Units-of-Production Method    The units-of-production method allocates depreciation in proportion to the degree the asset is used for production. The depreciation per unit of production is computed by dividing the total expected depreciation by the estimated units- of-production capacity (in miles driven，tons hauled, number of cuttings, drillings or stampings of parts, etc. ) that has been projected for the asset. Thus,

Assume that our example is a drilling tool that will drill an estimated 45 000 parts during its useful life. The depreciation per unit of production is

If 8 000 units were produced during the first year，then 8 000×$0.02=$ 160 would be this year’s depreciation expense. If 12 000 parts were drilled the next year, that year’s depreciation expense would be 12 000×$ 0. 02= $ 240.

The units-of-production approach is particularly appropriate when wear is the major cause of depreciation and the amount of use varies from period to period.

Sum-of-the-Year’s-Digits Method    By the SYD method, the yearly depreciation is calculated by multiplying the total depreciable amount for the life of the asset by a fraction whose numerator is the remaining useful life and whose denominator is the SYD. Thus，

The calculations for our example are shown below：

Double-Declining Balance Method    Another accelerated depreciation method is the DDB method, which derives its name from the fact that a constant percentage factor, twice the straight-line rate, is determined and applied each year to the declining balance of the asset’s book value. The straight-line rate is simply the number of years in the asset’s useful life divided into 100%. In our example, this would be 100%/5 = 20%. Double the straight-line rate is then 40%. In equation form,

Observe that in the fifth year depreciation expense is only $ 30，the amount needed to reduce the asset’s book value to the estimated salvage value of $ 100. Assets are not to be depreciated below their salvage values. If no salvage value has been estimated, the double-declining-balance technique automatically provides for some salvage value(here $ 78).

As we have mentioned above，the accelerated depreciation method is most appropriate for those situations in which the asset is judged to render greater utility during its earlier life and less in its later life. An accelerated pattern of depreciation is suitable for assets with either a high technological obsolescence factor in the early life phase or a high maintenance factor in the late life phase. In addition, there are certain financial advantages that can be derived from using one of the accelerated depreciation methods as opposed to the straight-line method for income tax reporting purposes. In a sense, accelerated depreciation provides an interest free loan to the taxpayer, because the accelerated methods allow the taxpayer to pay less tax in the earlier phase of the asset’s life and more in the later phase.

Accounting for depletion of natural resources is comparable to units-of-production depreciation for constructed fixed assets. Intangible assets are amortized over the shorter of the economic life or the legal life (if any) , with a maximum amortization period of 40 years as specified in Opinion No. 17 by the Accounting Principles Board of the AICPA.

New Words, Phrases and Special Terms

Notes to the Text

1. Many accountants contend that long-term assets are actually "bundles of services or utility” that their rate of depreciation should be related in some way to the pattern in which these services are used to generate revenues.

(1)全句包含用连词and连接的两个并列的宾语从句，分别用连词that 引导。

(2)在第二个宾语从句中还包含一个修饰the pattern的定语从句，用关系代词which引导,which在定语从句中作介词in的宾语。

2. For many assets one can argue that the utility is more rapidly consumed in the earlier periods of useful life than in the later periods.

(1)全句包含一个用连词that引导的宾语从句。

(2)这一宾语从句属比较结构,处于对比地位的是两个介词短语in the earlier periods of useful life 和in the later periods (of useful life)。

3. If 8 000 units were produced during the first year，then 8 000 ×$ 0.02 =$160 would be this year’s depreciation expense.

(1)全句包含一个用连词if引导的表示虚拟条件的状语从句。

(2)条件状语从句中的谓语动词were和主句中的谓语动词would be 都属虚拟语气。

4. The units-of-production approach is particularly appropriate when wear is the major cause of depreciation and the amount of use varies from period to period.

句中用when引导的时间状语从句是由两个并列的分句构成的(用连词and连接)。

5. Another accelerated depreciation method is the DDB method, which derives its name from the fact that a constant percentage factor，twice the straight-line rate，is determined and applied each year to the declining balance of the asset’s book value.

(1)全句包含一个用关系代词which引导的非限制性定语从句，用以修饰the DDB method.

(2)定语从句中，介词from的宾语是the fact及其同位语从句(用连词that引导)。在这一同位语从句中，用连词and连接了两个并列的谓语：is determined and (is) applied…to…。

6. As we have mentioned above, the accelerated depreciation method is most appropriate for those situations in which the asset is judged to render greater utility during its earlier life and less in its later life.

(1)全句包含一个用连词as引导的方式状语从句。

(2)主句中又包含一个修饰those  situations的定语从句(用关系代词which引导，which在从句中作介词in的宾语)。

READING MATERIAL

CONTROL OF FIXED ASSETS

Firms with a large number of fixed assets normally maintain some formal records and follow systematic inventory procedures so that specific persons can be held accountable for the asset’s use and protection. Many firms assign a specific serial number (顺序编号) to identify each significant asset. This is usually done by small decals, stampings, or etchings that are not easily removed or altered.

Coupled with the identification procedures will be a formal record of the assets called a plant ledger or an equipment ledger. This record is often a subsidiary ledger to the various fixed asset accounts. Certain basic data are usually provided. The following list is representative：Description

Manufacturer's identification(制造厂商鉴定书)or model number(型号)

Firm’s assigned serial number and accounting classification

Date purchased

Assigned physical location

Person accountable

Original Cost

Major modifications and repairs

Depreciation method and data

Disposition Data (清理数据)(date, price, remarks)

This record requires that any purchase, transfer or disposition of property be formally noted. Also，a company should periodically verify its equipment ledger by a physical count of the items involved.

LESSON NINETEEN PAYROLL ACCOUNTING

Wages and salaries represent a major element in the cost structure of most businesses. The precise nature of an enterpriser’s payroll records and procedures depends to a great extent on the size of its work force and the degree to which the recordkeeping is automated. In some form, however, two records are basic to most payroll systems: the payroll register and individual employee earnings records.

The payroll register is a detailed listing prepared each pay period of the company’s complete payroll. Each employee’s earnings and deductions for the period are contained in the payroll register. Exhibit 19-1 illustrates a payroll register typical of those prepared by a firm with a small number of employees.

Payroll accounting procedures are influenced significantly by legislation enacted by the U. S. federal and state governments. These laws affect payroll accounting because they levy taxes based on payroll amounts.

(1) The Federal Insurance Contributions Act establishes the tax levied on both employee and employer. FICA tax applies to wages paid to employees during a calendar year, up to a certain amount per employee. Let us suppose that the tax was applied to the first $ 45 000 of an employee’s wages and the tax rate is planned by legislation as 7. 51%.

(2) Employers are required to withhold federal income taxes (and state income taxes in most states) from wages and salaries paid to employees. The amount of income tax withheld from each employee is based on the amount of the employee’s wage or salary, the employee’s marital status, and the number of withholding allowances to which the employee is entitled. Employers usually use wage-bracket tables prepared by the government to determine the amount of federal income taxes to withhold from each employee. Figures in our illustration are supposed to be based on such wage-bracket tables.

The payroll register often serves as the basis for an entry to record the weekly payroll in the general journal. In our illustration, the entry would be：

Office Salaries Expense　　　　　　　　　　　724. 00

Sales Salaries Expense　　　　　　　　　　1 062. 00

　　FICA Tax Payable　　　　　　　　　　　　　　　　107. 16

　　Federal Income Tax Withholding Payable　　　　　223. 10

　　Hospital Insurance Premiums Payable　　　　　　　18. 50

　　Savings Bonds Deductions Payable　　　　　　　　13. 50

　　Payroll Payable　　　　　　　　　　　　　　　　1 423. 74

(3) Besides the FICA tax，which is levied on both employee and employer, the FUTA(Federal Unemployment Tax Act) tax is levied only on the employer. Suppose that the law established the rate at 5. 6% of the first $ 7 000 paid to each employee, but the employer is entitled to a credit against this tax for the state unemployment compensation taxes. The maximum credit allowed is 4. 3% of the first $ 7 000 of each employee’s wages. Hence, the effective FUTA rate on the employer will generally be 1. 3% of the first $ 7 000 paid to each employee. The entry to record the employ’s payroll tax liabilities for the week would be:

Payroll Tax Expense 　　　　　　　　　　218. 07

　　FICA Tax payable (7. 51%×$1 786) 　　　　134. 13

　　Federal unemployment Tax Payable

　　　(1.3%×$ 1 786) 　　　　　　　　　　　　　23.22

　　state Unemployment Tax Payable

　　　(4.3%×$1 786)　　　　　　　　　　　　　 60.72

The various liabilities established in the entries recording the payroll and the employer’s payroll taxes are settled by the employer making payments to the appropriate parties. The legislation levying various taxes also specifies the procedures for remitting these taxes to the government and establishes the reports an employer must file.

While a payroll register lists information on the gross earnings and deductions of all employees for each payroll period, the individual employee earnings records contain information on gross earnings and deductions for each employee for all payroll periods during the year. This record contains much of the information needed to permit the employer to comply with the various taxation and reporting requirements established by law. Its last column headed "Cumulative Gross Earnings” enables the employer to know when an employee’s earnings for the year have exceeded the maximum amounts to which the FICA and unemployment taxes are applied.

New Words, phrases and Special Terms

Notes to the Text

1. The precise nature of an enterprise's payroll records and procedures depends to a great extent on the size of its work force and the degree to which the recordkeeping is automated.

(1)动词depend后要接用介词on(或upon)。句中，插在depends和on 之间的介词短语to a great extent是修饰谓语动词depends的状语。

(2)在depends on的两个并列的宾语(用and连接)the size…和the degree to which…中，定语从句to which…修饰the degree。

2. The legislation levying various taxes also specifies the procedures for remitting these taxes to the government and establishes the reports an employer must file.

(1)现在分词短语levying various taxes 修饰句中主语the legislation。

(2)连词and连接两个并列的谓语also specifies…和establishes…。

(3)在前一段谓语中，介词短语for…修饰谓语动词specifies的宾语the procedures。这一介词短语的宾语是动名词短语remitting…government 。

(4)在后一段谓语中，定语从句an employer must file修饰谓语动词establishes的宾语the reports。引导这一定语从句的关系代词that，用作从句中谓语动词must file的宾语，被省略。3. Its last column, headed “Cumulative Gross Earnings” enables the employer to know when an employee’s earnings for the year have exceeded the maximum amounts to which the FICA and unemployment taxes are applied.

(1)headed "Cumulative Gross Earnings"是全句主语its last column 的同位语。

(2)全句谓语动词enables的复合宾语the employer to know…中，补语是一个不定式复杂结构。

(3)在这个不定式复杂结构中,不定式to know的宾语是用连接副词when引导的从句。

(4)在这一宾语从句中，又包含一个修饰the maximum amounts的定语从句(用关系代词which引导)。

READING MATERIAL

PAYMENT TO EMPLOYEES

A company with small number of employees may pay them with checks drawn on the firm’s regular bank account. With a large number of employees, it is usually more practical to establish a separate bank account to pay the payroll.

When a company uses a separate payroll bank account，each pay period it draws a check on its regular bank account in an amount equal to the total net earnings of the employees. This check is deposited in the payroll bank account. Individual payroll checks are then drawn on this account and delivered to the employees. The issuance of the payroll checks reduces to zero the book balance in the payroll bank account.

One advantage of maintaining a separate payroll bank account is that it readily permits a division of work between the preparation and issuance of regular company checks and payroll checks. A related advantage is that it simplifies the monthly reconciliation of the regular bank account. The large number of payroll checks, many of which may be outstanding(未兑付的)at month-end, are not run through the regular bank account. Of course，the payroll bank account also needs to be reconciled, but typically, the only reconciling item for this bank account will be payroll checks outstanding.

Sometimes employees are paid in currency and coin rather than by check This may happen, for example, if the employees work in a location where it may not be convenient for them to deposit or cash(兑现)checks. The company will prepare and cash one of its own checks for the payroll amount. Each employee’s pay is put into a pay envelope (工薪袋)and delivered to the employee. As a feature of internal control and to have evidence of the payment made，an employee should sign a receipt for the payroll envelope.

LESSON TWENTY BONDS PAYABLE

Bonds are, in essence, long-term notes payable issued to a large number of lenders. Consequently, they are usually drawn up to be negotiable. Bonds may be secured by mortgage on some specific property and are known as secured bonds, while those that have no specific property pledged as security for their repayments are called debenture bonds.

The face value of a bond is the amount of principal to be repaid at the maturity date. Interest on bonds is usually paid semiannually, with the payments six months apart. Bonds may be sold at their face value, or at a premium or discount, depending on whether the nominal interest rate on the bonds is equal to, moral than, or less than, respectively, the applicable current market rate of  interest. Thus, a bond premium or a bond discount should be considered an adjustment of interest expense over the life of the bond.

To provide a simple illustration, we assume that on January 1, 20x0, Ross, Inc. issued one hundred $ 1 000, 6% bonds that mature in 5 years at 98% of their face value. The entry to record the issue of these bonds would be:

Jap 1 Cash　　　　　　　　98 000

　　　Bond Discount 　　　　2 000

　　　　　Bonds payable 　　　　100 000

On June 30, the entry to record the first semiannual interest payment is:

June 30 Bond Interest Expense　3 000

　　　　　　Cash 　　　　　　　　　3 000

The journal entry to record the semiannual amortization of Bond Discount under straight-line method would be:

June 30 Bond Interest Expense　200

　　　　　　Bond Discount　　　　200

An alternative method for the amortization of bond discount or premium is known as the effective interest method, which reflects a constant rate of interest over the life of the bonds. However, it is much more complex than the straight—line method.

Not all bonds are sold on the exact day on which their interest begins to accumulate. Such bonds would be sold at some price "plus accrued interests”. IF Ross, Inc. sold its bonds on April 1 instead of January 1 at 98% of their face value, the entry would be:

Apr. 1 Cash　　　　　　　　　　　99 500

　　　Bond Discount 　　　　　　　2 000

　　　　　Bonds payable 　　　　　　　100 000

　　　　　Bond Interest Payable 　　　　　1 500

In the balance sheet, Bond Discount and Bond premium accounts are classified as a deduction from or addition to, respectively, the face value of the bonds. Bonds payable maturing within the next year should be classified as a current liability. An exception to this classification guideline arises when a bond sinking fund, a noncurrent asset, will be used to retire the bonds. In that case, because a current asset will not be utilized to retire the bonds, Bonds payable may continue to be classified as long-term liabilities.

Bonds are usually retired at their maturity dates with an entry debiting Bonds Payable and crediting Cash for the amount of the face value of the bonds because any bond discount or premium has been amortized to zero. However, bonds may be retired before maturity. In this case, the following factors should be considered：

1. Amortization of any related discount or premium to the retirement date.
2. Removal of both the bond liability account and any related discount or premium account.
3. Recognition of any gain or loss on the retirement of the bonds.

Assume that the bonds issued by Ross, Inc. were called for retirement at 101% plus accrued interest on April 1,20 X 3. The related account balances at the end of 20X2 would be：

Bonds Payable　$ 100 000

Bond Discount　　　$ 800

The following entries would properly reflect the retirement of the bonds on April 1, 20X3.

New Words, Phrases and Special Terms

Notes to the Text

1. Bonds may be secured by mortgage on some specific property and are known as secured bonds, while those that have no specific property pledged as security for their repayment are called debenture bonds.

(1)全句包含用连词while连接的两个并列分句。

(2)在后一个分句中,还包含一个用关系代词that引导的限制性定语从句that在从句中作主语。

2. Bonds may be sold at their face value, or at a premium or discount, depending on whether the nominal interest rate on the bonds is equal to, more than, or less than,respectively,the applicable current market rate of interest.

(1)以depending on引导的现在分词复杂结构作为状语修饰全句。

(2)在这一复杂结构中,包含一个以连词whether引导的从句,用作介词on的宾语。

3. An alternative method for the amortization of bond discount or premium is known as the effective interest method, which reflects a constant rate of interest over the life of the bonds.

句中,以关系代词which引导的非限制性定语从句,修饰the effective interest method.

READING MATERIAL

CAPITAL STRUCTURE

A company’s financial stability and risk of insolvency depend on its financing source and sizes of various assets it owns. Capital structure refers to a company’s financing sources and its economic attributes (属性). It is often measured in terms of the relative magnitude of the various financing sources.

The equity ratio also gives a clue to the extent of the firm’s borrowing in relation to its assets. At the close of year 2,53% of the firm’s capital was being provided by common stockholders and 47% by debtors and preferred stockholders.

Here, the firm’s income available to meet(如期偿付)interest charges was approximately 11 times the amount of its interest expense. Obviously,the firm has a good margin of safety(安全边际)。

LESSON TWENTY-ONE PARTNERSHIP ACCOUNTING

A partnership is a voluntary association of two or more per­sons for the purpose of conducting a business for profit.Each gen­eral partner is an agent for the partnership, has unlimited liability for partnership obligations, and co-owns firm property with all partners. A partnership is a nontaxable entity and may be dissolved by any membership change or by court decree.

The books of a partnership are opened with an entry reflecting the net contribution of each partner to the firm. Assets invested in a partnership should be recorded initially at their current fair val­ues. New partners may be admitted to a partnership either by pur­chasing an interest or by investing assets. Likewise, a retiring partner may sell his or her interest to an outsider or to one or more of the remaining partners, or receive payment for the interest from partnership funds. The transfer of an interest is a personal transac­tion between the parties involved. Under such conditions there will be no change in the firm’s assets.

Partnership profits and losses are divided among partners ac­cording to the sharing agreement. If there is no sharing agreement, profits and losses are divided equally. The agreement may just specify a fixed ratio (such as 60% to 40%,5:3:2, etc. ) or provide a sharing formula of some kind. The formula may be based on：

(1) therelative investments of the partners-the beginning oraverage capital ratio for the year,

(2) the services performed by the partners-a salary allowance for each partner with the remainder of net income to be divided equally, or

(3) both-a salary allowance and an interest allowance for each partner with the remainder of net income to be divided equally.

Assume that the Ames and Baker partnership had a profit $ 18 000for the year and that the partners’ relative capital balances before anyprofit distribution at the end of the year were as follows：

Ames and Baker have the following sharing agreement： salaries of $ 6 000 to Ames and $ 4 000 to Baker;6%interest onaverage capital balances； and the remainder of net income to be divided equally. The net income $ 18 000 would therefore be divided as follows：

The closing entry would be：

Income Summary　18 000

　　Ames, Capital　　　10 450

　　Baker, Capital　　　7 550

If Ames and Baker had withdrawn cash equal to their salary allowances, their drawing accounts at the end of the year would show debit balances of $ 6 000 and $ 4 000 respectively. The entry to close the drawing accounts would be：

Ames,Capital　　　　6 000

Baker, Capital　　　　4 000

　　Ames, Drawing　　　　6 000

　　Baker, Drawing　　　　4 000

The statement of partners’ capital must portray the changes in the capital balances of each partner, as shown in Exhibit 21-1.

The situations that arise during partnership liquidations can be quite complex. In short, when a business partnership is discontinued, the assets are sold, liabilities are paid, and the remaining cash is distributed to the partners. Essentially, gains and losses realized in selling assets are carried to the partners’ capital accounts (in the established profit and loss sharing ratio),and each partner eventually receives the balance remaining in his or her capital account.

New Words, Phrases and Special Terms

Notes to the Text

1.If Ames and Baker had withdrawn cash equal to their salary allowances, their drawing accounts at the end of the year would show debit balances of $ 6 000 and $ 4 000 respectively.

(1)这是真实条件句,其中包含一个由连词if引导的条件状语从句。

(2)主句和从句中的谓语动词都属陈述语气。hadwithdrawn系过去完成时态,would show系一般过去时态,would表示的是某种倾向或惯常情况。

(3)形容词equal+介词to引导的短语作为修饰cash的定语。

2. In short,when a business partnership is discontinued,he assets are sold, liabilities are paid and the remaining cash is distributed to the part­ners.

(1)全句包含一个用连词when引导的时间状语从句。

(2)主句部分是三个并列的分句,用连词and连接。

READING MATERIAL

CHARACTERISTICS OF A PARTNERSHIP

While a partnership is an accounting entity, it is not a legal entity sep­arate from its owners. Ease of formation is one of several characteristics re­lating to this aspect of partnerships. The other characteristics are：

Mutual Agency    Mutual agency means that every partner becomes an agent for the firm, with the authority to enter contracts(缔结契约) binding to the partnership. Although the partners may agree to limit the authority of one or more partners to act on customary matters(惯常业务),a partner acting in contravention of such a restriction may still contractually bind the partnership if the other party to the contract is unaware of the limitation.

Unlimited Liability    Each partner in a general partnership(一般合伙)is individually liable for the obligations of the firm regardless of the amount of personal investment. In addition to at least one general partner, a limited partnership(有限合伙)has one or more limited partners. The liability of a limited partner is restricted to his or her capital investment. A limited part­ner who becomes active in the control of the firm, however, takes on the unlimited liability status of a general partner, as provided by the U. S. Uniform Limited Partnership Act. (统一有限合伙法).

Limited Life    Many events may cause the dissolution of a partnership. These include the expiration of the agreed-on term of partnership； theaccomplishment of the business objective； the admission of a new partner； the withdrawal, death, or bankruptcy of an existing partner; and the issuance of a court decree because of a partner's insanity, incapacity,or mis­conduct. Even though a change in membership dissolves a partnership, business continuity is often unaffected.

Co-ownership of Property    Assets contributed by partners become partnership property jointly owned by all partners. Unless there is an agreement to the contrary, each partner has an equal right to possess firm property for partnership purposes.

Nontaxable Entity    Although a partnership must file an information return(资料申报单)for federal income tax purposes, the organization it­self is not a taxable entity. The information return shows the distributive shares of the partnership’s net income that the partners themselves include on their individual tax returns. The individual members must pay income taxes on their respective shares of partnership earnings whether or not these amounts have been withdrawn from the firm.

LESSON TWENTY-TWO CORPORATION ACCOUNTING:CAPITAL STOCK

A corporation is a separate legal entity chartered by the state or, in some cases (such as the formation of a national bank),by the federal government. The liability of corporate shareholders is usually limited to their ownership investment. Unlike single proprietorships and partnerships, corporations must report paid-in equity capital separately from accumulated earnings, called retained earnings. Distributions to shareholders are limited by the amount of retained earnings and other capital specified by state law. It is in the area of owners’ equity that differences arise between accounting for a corporation and accounting for a sole proprietorship or partnership.

The amounts and kinds of stock that a corporation may issue are enumerated in the company’s charter. Provision may be made for several classes of stock. The charter specifies the maximum number of shares of each class of stock that may be issued. This is the corporation's authorized stock. Shares that have been sold and issued to stockholders constitute the issued stock of the corporation. Some of this stock may be repurchased by the corporation. Shares actually held by stockholders are called outstanding stock, while those reacquired by the corporation are treasury stock.

Common stock represents the basic ownership class of stock for a corporation. Preferred stock may differ from common stock in any of several characteristics. Typically, preferred stocks have some type of dividend preference and a prior claim to assets in liquidation. When the board of directors declares a distribution of earnings, preferred stockholders are entitled to receive a certain annual amount of dividends before the common stockholders receive any distribution. The amount is usually specified in the preferred stock contract as a percentage of the face value (called par value) of the stock or in dollars per share if the stock does not have a par value. Preferred dividends are usually cumulative. Ordinarily, preferred stockholders do not participate further in distributions made by the corporation. In rare circumstances, however, the stock contract may make the preferred a participating stock. Preferred stock may also be partially participating. Ordinarily, preferred shareholders do not have the right to vote in the election of directors. Sometimes, a preferred stock contract confers full or partial voting rights under certain conditions——as when dividends have not been paid for a specified period of time.

In the balance sheet, the par values or stated values of different forms of stock (preferred, common) are shown separately, as is any excess or deficiency received for the shares. These differences are called premium and discount, respectively, for par value stock. However, shares are rarely issued at a discount. For no-par stock with a stated value, an appropriate title——for example, paid-in capital in excess of stated value——describes the difference.

Treasury stock may be purchased for a variety of reasons, including to reissue them to officers and employees in profit sharing schemes or stock-option plans. Whatever the purpose, the corporation is in reality reducing owner capital for a period of time. It is commonly recorded at cost and shown as a deduction from total stockholders' equity in the balance sheet.

Take an illustration：

(1)Sale of 1 000 shares of $ 100 par value,8% preferred stock at $ 105 per share (through an investment banker).

Cash　　　　　　　　　　　　　　　　　105 000

　　8% Preferred Stock　　　　　　　　　　　100 000

　　Paid-in Capital in Excess of Par Value　　　　5 000

(2)Sale of 1 000 shares of $ 100 par value, 7% preferred stock at $ 98 per share.

Cash　　　　　　　　　　　　　　　98 000

Excess of Par Value over Amount Paid　2 000

　　7% Preferred Stock　　　　　　　　　100 000

(3)Sale of 5 000 shares of no-par common stock (authorized 10 000 shares),stated value $ 20,at $ 30 per share.

Cash　　　　　　　　　　　　　　　　　　　150 000

　　Common Stock　　　　　　　　　　　　　　　100 000

　　Paid-in Capital in Excess of Stated Value　　　　50 000

(4)Repurchase of 1 000 shares of foregoing common stock at $ 35 per share.

Treasury Stock　35 000

cash　　　　　　　　35 000

(5) Resale of 500 shares of foregoing treasury stock at $40 per share.

Cash        　　　　　　　　　　　　　　 20 000

　　Treasury Stock　　　　　　　　　　　　17 500

　　Paid-in Capital from Treasury Stock        　 2 500

If the treasury shares were reissued ata lower price, the deficiency in capital would be offset against previously recorded paid-in capital from treasury stock transactions or, if that is not possible, against retained earnings.   

If a balance sheet were prepared after these transactions, the stockholder’s equity section would appear as shown below (assuming retained earnings of $60 000):

The book value per share of common stock indicates the net assets, based on recorded amounts, associated with a share of common stock. Preferred stocks are assigned the amounts their owners would receive if the corporation liquidated—that is, the liquidation preference of preferred stock plus any dividend arrearages on cumulative stock. If the stated liquidation preference is $ 103 per share for both the two classes of preferred stock (and no dividends in arrears) in our illustration, the computation of the book value per share of common stock appears below.

Common stock book value is not the same as its market value or liquidation value.

New Words, Phrases and Special Terms

Notes to the Text

1. It is in the area of owners' equity that differences arise between accounting for a corporation and accounting for a sole proprietorship or partnership.为了强调in the area of owners' equity,用it(可称为强调词)作形式主语,连词that引导的从句是真正主词。如果不用强调的句型结构,原句就是The differences between accounting for a corporation and accounting for a sole proprietorship or partnership arise in the area of owners’ equity.

2. Sometimes, a preferred stock contract confers full or partial voting rights under certain conditions—as when dividends have not been paid for a specified period of time.

(1)破折号后由介词as引导的复杂结构,是为了补充说明而加的插入语。

(2)介词as的宾语是由连接副词when引导的从句。

3.In the balance sheet, the par values or stated values of different forms of stock are shown separately, as is any excess or deficiency received for the shares.

(1)全句包含一个用连词as引导的方式状语从句。

(2)这一状语从句是倒装结构。从句中的主语是anyexcess or deficiency received for the shares(过去分词短语received…修饰excess or deficiency)。句中的谓语是is (shown separately,这两词省略)。

4.Whatever the purpose, the corporation is in reality reducing owner capital for a period of time.

(1)全句包含一个以连接代词whatever引导的让步状语从句。

(2)这一状语从句中的谓语动词may be被省略,即Whatever the purpose (may be)。

5. If the treasury shares were reissued at a lower price, the deficiency in capital would be offset against previously recorded paid-in capital from treasury stock transactions or, if that is not possible, against retained earnings.

(1)全句中包含一个用连词if引导的表示虚拟条件的从句。

(2)主句和从句中的谓语动词would be和were reissued都属虚拟语气。

(3)主句中还包含一个插人语if that is not possible。

6. If a balance sheet were prepared after these transactions, the stockholder's equity section would appear as shown below.

(1)全句包含一个用连词if引导的表示虚拟条件的状语从句。

(2)从句中的谓语动词were   prepared和主句中的谓语动词would appear都属虚拟语气。

7. Preferred stock are assigned the amounts their owners would receive if the corporation liquidated.

(1)全句是被动结构。即从“We assign preferred stock the amounts…” 转换而来,间接宾语改作主语(Preferred stocks),谓语动词用被动语态(are assigned),直接宾语则保留不动(the amounts…)。

(2)句中修饰the amounts的是定语从句(that) their…if…,关系代词that在整个从句内作谓语动词would receive的宾语,被省略。

(3)这一定语从句是虚拟条件句,其谓语动词would receive和用if引导的条件状语从句中的谓语动词liquidated都属虚拟语气。

READING MATERIAL

CHARACTERISTICS OF CORPORATIONS

Separate Legal Entity    A corporation is a legal entity created on the approval of the appropriate governmental authority. When a business receives its corporate charter, it is empowered to carry on business affairs apart from its owners. The corporation, as a legal entity, may acquire assets, incur debts, enter into contracts, sue, and be sued all in its own name.  

Limited Liability    The liability of shareholders with respect to company affairs is usually limited to their equity in the corporation. Because of this limited liability, the government places rigid controls on the distribution of contributed capital. Distributions of retained earnings (undistributed profits) are not legal unless the board of directors formally declares a dividend.

Transferability (可转移性)of Ownership    Shares in a corporation may be routinely transferred without affecting the operations of the company. Although corporations must have stockholders’ records in order to notify shareholders of meetings and to pay dividends, no accounting recognition is given to the individual or aggregate price for which transfers are made.

Continuity of Existence    Because routine transfers of ownership do not affect a corporation’s affairs, the corporation is said to have continuity of existence (存在的连续性). In this respect, a corporation is completely different from a partnership.

Capital Raising Capability    The limited liability of stockholders and the ease with which shares of stock may be transferred from one investor to another are attractive features to potential stockholders. They enhance the ability of the corporation to raise large amounts of capital by issuing shares of stock. The ability to accumulate and use tremendous amounts of capital makes the corporation the dominant form of business organization in the U. S. economy.

Taxation    As legal entities, corporations are subject to federal income taxes on their earnings, whether distributed or not. In addition, shareholders receiving the earnings as dividends must pay personal income taxes on such dividend income.

Usually, corporations are subject to state income taxes in the states in which they are incorporated or are doing business and they may be subject also to real estate(不动产),personal property(动产)and franchise taxes.

Regulation and Supervision    Corporations are subject to greater degrees of regulation and supervision than are proprietorships and partnerships. Each state has the right to regulate the corporations it charters. State statutes place certain limitations on the powers a corporation may exercise, identify reports that must be filed, and set forth the rights and liabilities of stockholders. If stock is to be issued to the general public, the corporation must comply with the provisions of laws governing the sale of corporate securities. Furthermore, corporations whose stock is listed and traded no organized security exchanges (证券交易所),such as the New York Stock Exchange(纽约证券交易所),are subject to the various reporting and disclosure requirements of these exchanges.

LESSON TWENTY-THREE CORPORATION ACCOUNTING: RETAINED EARNINGS

Corporations’ earnings are accumulated separately from its paid-in equity capital. Some of the major transactions related to retained earnings are：

(1)Cash dividends, which reduce retained earnings and become a current liability when declared.

The following entry would be made at the declaration date：

Retained Earnings　　　　　　　　　　XXX

　　Dividends Payable-Preferred Stock　　　XXX

　　Dividends Payable-Common Stock　　　XXX

On the payment date, the following entry would be made in the cash disbursements journal ：

Dividends Payable-Preferred Stock　XXX

Dividends Payable-Common Stock　XXX

　　Cash　　　　　　　　　　　　　　　XXX

Some companies, especially those paying quarterly dividends, debit an account called Dividends Declared at the time of declaration. Until closing, this account is classified as a contra account to Retained Earnings. At the end of each year, the Dividends Declared account is closed by a debit to Retained Earnings.

(2) Stock dividends, which represent a transfer of retained earnings to the appropriate stock and paid-in capital accounts.

For small stock dividends (additional shares issued are fewer than 20% of the number previously outstanding) the AICPA recommends transferring an amount equal to the market value of the shares issued from Retained Earnings to stock and paid-in capital accounts.

Assume that before declaration of a 10% stock dividend there are 2 000 shares of $ 50 par value common stock outstanding and the shares are being sold at a market price of $ 70 per share. The amount to be transferred from Retained Earnings would be $ 14 000 (200 shares),of which $ 10 000 (par value of the shares) is credited to the account Stock Dividend to Be Issued and the premium of $ 20 per share, or $4 000,is credited to Paid-in Capital in Excess of Par Value.

Retained Earnings　　　　　　　　　　　14 000

　　Stock Dividend to Be Issued　　　　　　　10 000

　　Paid-in Capital in Excess of Par Value　　　4 000

When the stock is distributed, the following entry is made：

Stock Dividend to Be Issued　10 000

　　Common Stock　　　　　　　10 000

If a balance sheet is prepared between the date that a stock dividend is declared and the date it is distributed, the account Stock Dividend to Be Issued is shown as a separate item and is added to the account Common Stock.

When the number of shares issued as a stock dividend is large enough to reduce materially per-share market value, the amount transferred from Retained Earnings to stock account is the minimum required by the law (that is, the legal capital). Usually this amount is the par or stated value of the stock.

(3) Appropriations, which are actually segregations of retained earnings.

The appropriated amount will reduce the retained earnings available for dividends. For example, assume that the board of directors has appropriated $ 10 000 for plant expansion. The following entry may be made：

Retained Earnings　　　　　　　　　10 000

　　Retained Earnings Appropriated

　　　for Plant Expansion　　　　　　　　　10 000

When the purpose is accomplished or the event transpires for which the appropriation was made, the restricted amount is returned, intact, to inappropriate retained earnings.

(4)Corrections of material errors made in previous periods.

These corrections will be charged or credited directly to Retained Earnings account.

A retained earnings statement is usually presented with the other corporate financial statements. It is an analysis of the retained earnings accounts (both appropriated and unappropriated) for the accounting period. The form of this statement is not standardized, and sometimes it is combined with the income statement An example of a retained earnings statement is shown below：

New Words, Phrases and Special Terms

Notes to the Text

1. Cash dividends, which reduce retained earnings and become a current

liability when declared.

(1)cash dividends作为本段的标题,用一个定语从句修饰它。

(2)定语从句中还包含一个用连词when引导的时间状况从句：when (they are) declared.

2. If a balance sheet is prepared between the date that a stock dividend is declared and the date it is distributed, the account Stock Dividend to Be Issued is shown as a separate item and is added to the account Common Stock.  

(1)全句包含一个用连词if引导的条件状语从句。

(2)在这一状语从句中,还包含两个用连词that引导的同位语从句,作为两个the date的同位语,第二个同位语从句中的连词(that)被省略。

3. When the purpose is accomplished or the event transpires for which the appropriation was made, the restricted amount is returned, intact, to inappropriate retained earnings.

(1)全句包含一个用连词when引导的时间状语从句。

(2)这一从句是由or连接的两个并列分句the purpose is accomplished 和the event transpires 组成。

(3)在后一段的分句中,还包含一个修饰分句主语the event的定语从句,关系代词which在从句中作介词for的宾语。

READING MATERIAL

EARNINGS PER SHARE

Financial statistics of great interest to corporation shareholders and potential investors are the earnings per share of common stock (普通股每股收益额).A single presentation of earnings per share is appropriate for corporations with a simple capital structure (简单资本结构), which contains no securities that, if exercised or converted, would reduce (dilute 稀释,摊薄)earnings per share of common stock. Corporations with complex capital structure (复杂资本结构),which contains one or more potentially dilutive securities, present data on both primary earnings per share (每股原先收益额)and fully diluted earnings per share (每股完全稀释收益额).Convertible debt (可转换债券), convertible preferred stock(可转换优先股), stock options(股票期权)and stock warrants (认股权)are examples of potentially dilutive securities, because if they are exercised or converted, the number of outstanding shares of common stock increases.

To illustrate the computation of primary and full diluted earnings per share, let us suppose the Minor Corporation had a net income of $ 90 000 for the current year. All year, the corporation had 40 000 shares of common stock and 5 000 shares of convertible preferred stock outstanding. The annual dividend on the convertible preferred stock is $ 0. 80 per share and each share is convertible into one share of common stock.

The form in which earnings-per-share data are disclosed should correspond with the nature of the income statement content. Thus, if a firm has reported extraordinary gains and losses, an earnings-per-share amount should be disclosed for income before extraordinary items as well as for net income. Similar disclosures should be made if the income statement contains an adjustment for the cumulative effect of a change in accounting principle.

LESSON TWENTY-FOUR THE STATEMENT OF CASH FLOWS

When preparing financial statements for external users, firms may elect either to prepare a statement of changes in financial position on working capital basis or to prepare a statement of cash flows.

The management of cash flows is a critical function in the operation of a business enterprise. The statement of cash flows may be prepared and used internally as part of the process of planning and controlling cash movements. Cash budgets are also important to the management of cash flows. Our focus here, however, is on cash flow statements prepared for users external to the business.

In 1987,The Financial Accounting Standards Board of U. S. A. issued SFAS No. 95"Statement of Cash Flows”, which superseded APB Opinion No. 19"Reporting Changes in Financial Position". It requires a statement of cash flows as part of a full set of financial statements for all business enterprises in place of a statement of changes in financial position (working capital basis).

This statement requires that a statement of cash flows classify cash receipts and payments as according to whether they stem from operating, investing, or financing activities.

SFAS No. 95 encourages enterprises to report cash flows from operating activities directly by showing major classes of operating cash receipts and payments (the direct method). Enterprises that choose not to show operating cash receipts and payments are required to report the same amount of net cash flows from operating activities indirectly by adjusting net income to reconcile it to net cash flows from operating activities (the indirect or reconciliation method) by removing the effects of (1) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (2) all items that are included in net income but do not affect operating cash receipts and payments. If the direct method is used, a reconciliation of net income and net cash flows from operating activities is required to be provided in a separate schedule.  

The comparative balance sheets and income statement for the XYZ Company are presented in the following exhibits respectively.

The Statement of Cash Flows of XYZ Company for the year 2000 is presented below：

Reconciliation of Net Income to Net Cash Provided by Operating Activities ：

To determine cash received from customers and cash paid to suppliers and employees, one must convert individual revenues and expenses from an accrual to a cash basis. These procedures may be portrayed as follows：

1. Cash Received from Customers=Net Sales＋(Beginning－Ending Notes and Accounts Receivable)

In our example：

$ 41 000= $ 50 000＋( $ 10 000－$ 19 000)

2. Cash Paid to Suppliers and Employees=[Cost of Goods Sold + (Ending－ Beginning Inventories) ＋(Beginning － Ending Notes and Accounts Payable)] ＋[Operating Expenses except depreciation and similar write-offs ＋(Ending－ Beginning Deferrals) ＋(Beginning－Ending Accruals)]

In our example：

$ 36 200=[$ 30 000＋( $ 35 000 — $ 30 000) ＋( $ 18 000 －$ 20 000)] ＋[ $ 3 200+( $ 0－$ 0) ＋( $ 2 000 －$2 000)]

New Words, Phrases and Special Terms

Notes to the Text

1. This statement requires that a statement of cash flows classify cash receipts and payments as according to whether they stem from operating, investing, or financing activities.

(1)连词that引导的从句是主句谓语动词require的宾语。从句中的谓语动词classify属祈使语气,其前的should可省略。

(2)上述宾语从句中,还包含一个用连词whether引导的从句,作为 according to 的宾语。

2. Enterprises that choose not to show operating cash receipts and payments are required to report the same amount of net cash flows from operating activities indirectly by adjusting net income to reconcile it to net cash flows from operating activities (the indirect or reconciliation method) by removing the effect of (1) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (2) all items that are included in net income but do not affect operating cash receipts and payments.

(1)关系代词that引导的定语从句that choose…payments修饰全句主语Enterprises.

(2)全句谓语动词are required系被动语态。这种被动结构的句型,实际上是把主动结构句型中复合宾语内的宾语enterprises变为主语,补语不定式复杂结构to report…则保持不动。

(3)这一不定式复杂结构中,以介词by引导的状语修饰整个不定式复杂结构。by的宾语是一个动名词复杂结构,动名词adjusting的复合宾语,由宾语net income和补语to reconcile…这一不定式复杂结构组成。

(4)在上述动名词复杂结构中,又包含一个以介词by引导的状语,修饰整个动名词复杂结构。by的宾语又是一个动名词复杂结构removing the effect…。其后由介词of引导的定语修饰effect,它也是一个复杂结构。

(5)of 的并列宾语all deferrals…and all accruals…与all items…用连词and连接。修饰all items的是关系代词that引导的定语从句,这一定语从句中的并列谓语are included…与do not affect…则用连词but连接。

READING MATERIAL

ANALYSIS OF OPERATING PERFORMANCE

In evaluating the operating performance (经营业绩)of a firm, the analyst invariably uses rate of return (报酬率、盈利率、收益率)analysis. This analysis, which deals with the firm's profitability(盈利能力), relates either the operating income or the net income to some base,such as the average total assets, average stockholders’ equity, or the year’s sales. The resultant percentage can be compared with similar rates for the firm in past years or to other firms. The most important relationships are：

The return on assets sometimes is called the productivity ratio (生产能力比率). It also aids management in gauging the effectiveness of its asset utilization.

The rate of return on sales varies widely from industry to industry. Some firms may operate in an industry characterized by low profit margins and high turnover of their principal assets (The ratio of net sales to average total assets is called asset turnover 资产周转率).On the other hand, firms that deal in relatively slow-moving products involving fairly long production periods require higher profit margins in order to earn a respectable rate of return on assets and on the owners’ investment. When this ratio is considered together with such relationships as return on assets and return on stockholders’ equity, much insight can be gained about the operating performance of a firm.

When analyzing the operating performance of a company, intelligent analysts make their own evaluations of the reported net income of a firm. Often, any unusual and/or nonrecurring items (such as gains and losses on sales of fixed assets or securities, casualty losses 事故损失,and the like) that have been included in the determination of net income are eliminated for analytical purposes. The analyst should also examine such factors as inventory pricing techniques and depreciation methods (and rates) to determine their effect on net income. The analyst wants to know whether the company’s net income falls in the low, or conservative (稳健的),end of the spectrum of possible amounts or whether it is on the high side. Once this is determined, it is possible to proceed to a more informed evaluation of a company’s operating performance, stock values, growth potential, and so on.

Because stock market prices are quoted on a per-share basis, it is useful to calculate a firm’s earnings on the same basis：

"Earnings per share for common stock" (which has been discussed in detail in the reading material of Lesson Twenty-Three) is usually given prominence in reports because both analysts and investors consider the relationship of prices and earnings to be quite important. In assessing stock values, the price-earning ratio is a useful tool ：

LESSON TWENTY-FIVE FOREIGN CURRENCY TRANSACTIONS

Foreign currency transactions are transactions whose terms are denominated in a currency other than an entity’s functional currency. The functional currency of an entity is the currency of the primary economic environment in which an enterprise operates. Thus, the functional currency of a British firm operating in United Kingdom is normally the Pound Sterling ( £ ). Foreign currency transactions arise when an enterprise either (1) purchases or sells of goods or services whose prices are expressed in a foreign currency；(2) borrows or lends funds which require settlement in a foreign currency； (3) becomes a party to an unperformed forward exchange contract；(4)disposes assets denominated in a foreign currency.

Accounting for foreign currency transactions involve four problems：(1) the initial recording of the foreign currency transaction, (2) the recording of the effect of changes in exchange rate at the subsequent balance sheet date,(3) the treatment of any foreign currency exchange gains or losses,(4) the recording of settlement of the foreign currency receivables and payables when they come due.

A firm can account for foreign currency transactions under either of the two methods：(1) the one-transaction perspective and (2) the two-transactions perspective.

Under the one-transaction perspective, the transaction is not considered complete until the cash needed to liquidate the receivable or payable has actually been exchanged. Foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount the spot rate (the exchange rate between the reporting currency and the foreign currency at the date of the transaction). At the subsequent balance sheet date, foreign currency transactions should be reported using the closing rate. Any foreign exchange gains or losses that arise from the transaction is considered as an adjustment to the cost of the purchases or the revenue from sales denominated in a foreign currency.

In contrast to the one-transaction perspective, the two-transactions perspective treats foreign currency receivables and payables as separate from the purchases or sales that gave rise to them. A foreign currency transaction should be initially recognized and recorded in the reporting currency by applying to the foreign currency amount the spot rate at the date of transaction. At the subsequent balance sheet date, the foreign currency monetary items should be reported using the closing rate and non-monetary items which are carried in terms of historical cost denominated in a foreign currency should be reported using the exchange rate at the date of the transaction. The foreign exchange gains or losses which arise from the change in the exchange rates between the transaction date and the settlement of any monetary items resulted from a foreign currency transaction is charged to the current income statement as financial income or expense instead of being used to adjust the revenue from the sales or the cost of the purchase when the transaction is settled within the same accounting period as that in which it occurred. However, when the exchange is settled in a subsequent accounting period, the exchange gains or losses which should be recognized in each intervening period up to the period of settlement is determined by the change in exchange rates during that period.

To illustrate accounting for foreign currency transactions under the one-transactions perspective and two-transactions perspective respectively, assume on October 25,20 X 0,Rayer Corporation ,a United State company that has customers in several foreign countries, sold merchandise on credit to Wilder Company, a company located in London, England. The price of £30 000 was to be paid 90 days from the date of sale. The current exchange rates for pounds into dollars during the time the receivable was outstanding were:

The two-transactions perspective is the most popular approach around the world.

New Words, Phrases and Special Terms

Notes to the Text

1. A foreign currency transaction should be recorded, on the initial recognition in the reporting currency, by applying to the foreign currency amount the spot rate (the exchange rate between the reporting currency and the foreign currency at the date of transaction).

(1)介词短语on the initial recognition in the reporting currency 和 by applying to the foreign currency amount the spot rate (the exchange rate between the reporting currency and the foreign currency at the date of transaction)修饰句中谓语should be recorded。

(2)在by applying to the foreign currency amount the spot rate…这一短语中,the spot rate是动名词applying的宾语。

2. The foreign exchange gains or losses which arise from the change in the exchange rates between the transaction date and the settlement of any monetary items resulted from a foreign currency transaction is charged to the current income statement as financial income or expense instead of being used to adjust the revenue from sales or the cost of the purchase when the transaction is settled within the same accounting period as that in which it occurred.

(1)定语从句which arise from the change in the exchange rates between the transaction date and the settlement of any monetary items resulted from a foreign currency transaction 修饰主语The foreign exchange gains or losses 。

(2)时间状语从句when the transaction is settled within the same accounting period as that in which it occurred 修饰整个谓语。

(3)定语从句in which it occurred修饰时间状语从句中的the same accounting period.

READING MATERIALS

EXCHANGE RATE

An exchange (汇率)is the amount of one currency that must be given to acquire one unit of another currency. Exchange rates are not stable over time. They change for the following reasons (1) trade balance of payments surpluses(顺差)or deficits(逆差); (2) relative rates of inflation (通货膨胀率)；(3) relative interest rates；(4) political factors and government intervention

If the rate is quoted(报价)for current currency transactions (usually for delivery to be made two business days later), it is called spot rate(即期汇率).The forward rate(远期汇率)is a contractual rate between the foreign exchange trader and his or her client for delivery of foreign exchange in the future. Rates are quoted from the trader's perspective. Ordinarily, the trader will offer two quotes—the bit and offer price of a foreign currency. For example, the quote for a British pounds sterling may appear as follows：

US$1. 7525/35

which means that the trader will buy pounds for US$ 1. 7525 (bid) and sell pounds for US$ 1.7535 (offer or ask). The difference between the two quotes is the profit margin for the trader and is often referred to as the points (10 points in the above example). Exchange rates are typically quoted on a direct basis; which is the amount of local currency equivalent to one of the foreign currency. The indirect quote(间接标价)is the reciprocal of the direct quote(直接标价),which is the amount of the foreign currency required for one unit of local currency. For example, assume the quote is made in United States and the dollar is local currency, the exchange rate for a British pounds sterling is as follows：US$1. 7525 per British pounds sterling (direct) or £0. 5706 per U. S. dollar (indirect). Sometimes, cross rates (套算汇率)are quoted. A cross rate is an exchange rate that is computed from two other rates. Using the U. S. dollar as the common currency to compute a cross rate, the spot rates for European Dollars and Swiss Frances are as follows：

LESSON TWENTY-SIX TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS

Many companies have business activities in more than one country and are referred to as multinational companies. Translation of foreign currency financial statements becomes necessary when the management of a multinational enterprise is to see the operation results of a foreign subsidiary company. Thus, the process of translation involves expressing or restating an account from one currency to another currency at the appropriate exchange rates. The four major methods used in translating foreign currency financial statements are：the current-noncurrent method, the monetary-nonmonetary method, the temporal method, and the current rate method. Exhibit 26-1 shows the various exchange rates used to translate selected accounts of a balance sheet.

Current - Noncurrent Method

Under the current-noncurrent method, current assets and liabilities are translated at current exchange rates and noncurrent assets and liabilities and stockholders’ equity are translated at historical exchange rates. The income statement is translated at the average exchange rate of the period except for those revenues and expenses items associated with noncurrent assets or liabilities. The later items, such as depreciation expense, are translated at the same rates as the corresponding balance sheet items. The method is based on the assumption that accounts should be grouped according to maturity. It is the earliest practice in the translation of foreign currency statements and is rarely adopted now.

Monetary - Nonmonetary Method

The monetary-nonmonetary method differentiates between monetary assets and liabilities—that is, those items that represent a claim to receive, or an obligation to pay a fixed amount of foreign currency units and nonmonetary, or physical assets and liabilities. Monetary items are translated at current exchange rate, and nonmonetary assets and liabilities and stockholders’ equity are translated at historical exchange rates. Income statement items except for revenue and expense items related to nonmonetary assets and liabilities are translated under the method similar to the current-noncurrent method. The philosophy behind this method is that monetary assets and liabilities have similar attributes in that their value represents fixed amount of money whose reporting currency equivalent changes each time the exchange rate changes. Examples of monetary assets and liabilities are cash, receivables, payables arid long- term debts.

Temporal Method

The temporal method requires that monetary items, such as cash, receivables, and payables, be translated at the current exchange rate. Nonmonetary assets and liabilities valued at historical cost are translated at the historical exchange rates. If they are valued at current cost, nonmonetary items would be translated at the current exchange rate. For example, inventory carried at the market would be translated at the current rate rather than at the historical rate. Income statement items are normally translated at an average rate for the reporting period. However, cost of goods sold and depreciation and amortization charges related to balance sheet items carried at historical prices are translated at historical rates. Any translation gains or losses are taken directly to the income statement. We may consider that the temporal method is an improvement based on the measurement concept to the monetary-nonmonetary method.

Current Rate Method

According to the current rate method, all balance sheet and income items are translated at the current exchange rate. Only stockholders’ paid-in capital would be translated at the historical exchange rate. Dividends are translated at the exchange rate in effect on the date of payment. Translation gains and losses are taken to a special accumulated translation adjustment account in stockholders’ equity. Thus the total amount of equity will be brought to the current rate base. This method results in translated statements that retain the same ratios and relationships that exist in the foreign currency.

The temporal method and the current rate method are the two prevailing methods used around the world. They are considered to be the two options suitable to different natures of the foreign operations. Exhibit 26-2 shows the translation process and the translated income statement, statement of retained earnings and balance sheet under the temporal method and the current method. When the functional currency is the currency of the foreign unit which is a rather independent operating entity, the current rate method is followed. When the functional currency is the reporting currency of the parent (here assumed to be the U. S. dollar) and the foreign unit is only an extension of the parent’s operation, the temporal method is preferred. Thus, the key is to know in which currency the books and records are kept and how the functional currency of the foreign entity is defined.

New words, Phrases and Special Terms

Notes to the Text

The philosophy behind this method is that monetary assets and liabilities have similar attributes in that their value represents fixed amount of money whose reporting currency equivalent changes each time.

(1)从句that monetary assets and liabilities have similar attributes 在句中作表语。

(2)介词复杂结构in that their value represents fixed amount of money whose…修饰宾语similar attributes.

(3)定语从句whose reporting currency equivalent changes each time 修饰fixed amount of money.

READING MATERIAL

LESSON TWENTY-SEVEN CORPORATE ACQUISITION AND CONSOLIDATED FINANCIAL STATEMENTS

When one corporation acquires all or most of another corporation's common stock in a single transaction, the transaction is called a corporate acquisition. The majority investor in this case is called the parent and the majority-owned company is called the subsidiary. When a business is operated as a parent company with subsidiaries, separate accounting records are kept for each corporation. Also, from a legal viewpoint, the parent and each subsidiary are separate entities with all the rights, duties, and responsibilities of a separate corporation. Generally accepted accounting principles require that the financial statements of majority-owned companies be combined or consolidated with those of the parent when the two following criteria are met：(1) the parent owns more than 50 percent of the voting stock of the subsidiary；(2) there are no important restrictions on the ability of the parent to excise control of the subsidiary. A consolidation of the financial statements of the parent and each of its subsidiaries presents the results of operations, financial position, and changes in cash flows of an affiliated group of companies under the control of a parent, essentially as if the group of companies were a single entity.

Purchase method is applied to the acquisition of a controlling interest by purchasing the voting stock from the subsidiary company with cash and noncash assets. Under the purchase method, the assets and liabilities of the subsidiaries are recorded at the amount of cash or fair value of other consideration given in the exchange. The difference between the acquisition cost and the fair value of the identifiable tangible and intangible assets acquired (less the subsidiary's liabilities) represents an unidentifiable asset and is reported as goodwill, which will be tested for impairment at least annually. If the acquirer’s interest in the net fair value of the acquired identifiable net assets exceeds the cost of the business combination that excess (sometimes referred to as negative goodwill) will be recognized immediately in the income statement as a gain in most cases. Immediately after the acquisition by the purchase, the retained earnings balance of the combined entity is that of the parent company only. Therefore, the retained earnings balance of the subsidiary is eliminated and not reported on the consolidated balance sheet. When the consolidated financial statement is being prepared, purchase method requires that intercompany transactions be eliminated to avoid double counting which mainly include parent’s investment, subsidiary's stockholder’s equity, intercompany receivables and payables, revenues, expenses, and dividends.

Before June 30,20 X 0 when the new business combination standard, FAS141, came into effect, an alternative method, called pooling of interest, might be adopted under strictly restricted conditions.

In preparing the consolidated financial statements, worksheets are useful in combining like items of assets, liabilities, revenues, and expenses on a line-by-line basis and making the necessary eliminations of intercompany transactions.

As illustrated in Exhibit 27-1, P Company acquired S Company on December 31,20X0,by purchasing 80% of its outstanding voting common stock for $ 90 000. The book value of S Company is $ 84 800(80% of $ 106 000). The investment in S company appears on P company’s balance sheet. Any excess of cost ($ 90 000) over book value ($ 84 800) increases the value of undervalued assets or is recognized as goodwill from consolidation. It is assumed that no assets are undervalued in our example. The interest in the subsidiary's net asset not owned by the parent company is recognized as the minority interest ($ 21 000,20% of $ 106 000) and is hold by minority stockholders who share in the subsidiary’s income with the parent company. The common Stock and Retained Earnings accounts of the subsidiary also represent an equity interest in the subsidiary's assets. If the investment account and the subsidiary's assets appear on the consolidated balance sheet, the same resources will be counted twice. Therefore, P Company’s investment in S Company must be offset against S Company’s stockholders’ equity accounts so that the subsidiary's assets and the ownership interest in these assets appear only once on the consolidated statement. This elimination is accomplished by entry (1) on the work-sheet. Entry (2) is required to eliminate the effect of the intercompany receivables and payables. On the date it acquired S Company, P Company lended S Company $ 5 000. The loan is recorded as a $ 5 000 note receivable on P’s books and a $ 5 000 note payable on S’s books. If the elimination entry is not made on the worksheet, the consolidation balance sheet will show $ 5 000 owed to the consolidated enterprise by itself. From the viewpoint of die consolidated entity, neither the asset nor the liability exists. Therefore, entry (2) is made on the worksheet to eliminate both the asset and the liability.

After these elimination entries are made, the remaining amounts are summed up and extended to the column labeled “Consolidated Amounts”. The amounts in this column are then used to prepare the consolidated balance sheet shown in Exhibit 27-2.

Consolidation of the financial statements of a parent company and a subsidiary is a reporting procedure only. This procedure does not affect the accounts of either the parent or the subsidiary and there are generally no separate books for the consolidated entity. Consolidated financial statements are prepared only by the parent company.

New Words, Phrases and Special Terms

Notes to the Text

In preparing the consolidated financial statements, worksheets are useful in combining like items of assets, liabilities, revenues, and expenses on a line-by-line basis and making the necessary eliminations of intercompany transactions to avoid double counting which include parent’s investment, subsidiary’s stockholders’ equity, intercompany receivables and payables, revenues, expenses, and dividends.

(1)不定式短语to avoid double counting作目的状语,修饰making the necessary eliminations of intercompany transactions 。

(2)定语从句which include parent's investment, subsidiary stockholders’ equity, intercompany receivables and payables, revenues, expenses, and dividends 修饰intercompany transactions。

READING MATERIAL

ACCOUNTING FOR INVESTMENTS

Accounting for investments depends on the purpose of the investment and on the percentage of voting stock that one corporation owns of another. Three types of investments can be identified.

1. Minority(少数股权),passive investment(被动投资).Shares of capital stock of another corporation are acquired for the dividends and capital gains (increase in the market prices of the securities) that are anticipated. The percentage owned of another corporation's voting shares (有表决权股份)is not so large (usually less than 20 percent) that the acquiring company can not control or exert significant influence over the other company. The cost method (成本法) must be used to account for the minority, passive investment. Under the cost method, the investment is measured at the acquisition date at cost in accordance with the cost principle. Subsequent to the acquisition, the investment amount is measured at the current lower or market, and then this amount is reported on the balance sheet under “Investment and Funds". Cash dividends declared by the investee corporation are reported by the investing entity as "Revenue from Investments" in the period declared.

2. Minority, active investments(主动投资).Shares of another corporation are acquired (between 20% and 50% of the outstanding voting stock) so that the acquiring corporation can exert significant influence over the other company’s activities. This significant influence is usually at a broad policy-making level through representation on the other corporation’s board of directors (董事会).The minority, active investment must be accounted for using the equity method(权益法) Under the equity method, the investor corporation recognizes as revenues (expenses) each period its share of the net income (loss) of the investee corporation. Investments on the balance sheet are reported at the acquisition cost plus (minus) the investor corporation's share of the investee’s net income (loss) each period minus the dividends received from the investee each period

3. Majority(多数股权),active investments. Shares of another corporation are acquired (more than 50% of the outstanding voting shares) so that the acquiring corporation (the parent company) can be sure to control the other company at both the broad policy-making level and at the day-to-day operational level. Generally accepted accounting principles require that the financial statements of majority-owned companies (the subsidiaries) be combined, or consolidated, with those of the parent as illustrated in this lesson.

LESSON TWENTY-EIGHT ACCOUNTING FOR MANUFACTURING OPERATIONS

The primary difference between merchandising and manufacturing firms is that merchandising firms buy finished products to sell while manufacturers make the products they sell. Manufacturing costs are accounted for in three categories：(1) raw materials, (2) direct labor, and (3) factory overhead, or manufacturing overhead (all other manufacturing costs not included in raw materials and direct labor, sometimes called factory burden). A cost of goods manufactured statement is given in Exhibit 28-1.

Exhibit 28-1 shows that the cost of goods manufactured equals the total of all manufacturing costs for the period adjusted for the change in work in process inventory. Manufacturers have three inventory accounts—Raw Materials, Work in Process, and Finished Goods. In manufacturing accounting, all product costs—raw materials, direct labor, and factory overhead—are capitalized; that is, they become the cost of goods manufactured and represent additions to the asset finished goods inventory.

The income statement of a manufacturing firm appears in Exhibit 28-2.

Notice that：

(1)Cost of goods sold equals cost of goods manufactured adjusted for the change in finished goods inventory.

(2)The totals of certain expenses are allocated in production, selling, and non-factory administration on some rational basis (such as number of persons involved or square feet of space used). Our illustration assumes the following allocations：

The Work in Process Inventory account reflects the costs of products that have been begun but are not completed at the end of the accounting period. In a general accounting system using periodic inventory procedures, the amount of work in process is estimated at the end of the period, usually by a production supervisor or someone else familiar with the manufacturing process. However, most manufacturing firms employ a cost accounting system which provides timely unit product costs through the use of perpetual inventory procedures and predetermined factory overhead rates.

New Words, Phrases and Special Terms

Notes to the Text

The primary difference between merchandising and manufacturing firms is that merchandising firms buy finished products to sell while manufacturers make the products they sell.

(1)全句的表语是用连词that引导的从句。

(2)这一从句由连词while连接的两个并列的分句构成。

(3)在后一个分句中还包含一个用来修饰the product的定语从句they sell.关系代词that在定语从句中作谓语动词sell的宾语,可省略。

READING MATERIAL

END-OF-PERIOD PROCEDURES FOR A MANUFACTURING FIRM

Most end-of-period procedures for manufacturing firms using periodic inventory system are similar to those for merchandising and service firms. Worksheets for manufacturing firms (see Exhibit 28-3) have an additional set of columns for the cost of goods manufactured. In addition to an Income Summary account, a Manufacturing Summary (制造成本汇总)account is needed in adjusting and closing procedures.

The adjustments on the worksheet are keyed to the parenthetical numbers of general journal entries below. When annual statements are prepared, adjusting entries are recorded in the general journal and posted to general ledger accounts.

1. Beginning inventories of raw materials and work in process：

Manufacturing Summary　　　　16 000

　　Raw Materials Inventory　　　　　10 000

　　Work in Process Inventory　　　　　6 000

2. Ending inventories of raw materials and work in process：

Raw Materials Inventory　　　18 000

Work in Process Inventory　　　8 000

　　Manufacturing Summary　　　　26 000

(3)Beginning inventory of finished goods：

Income Summary　　　　　　20 000

　　Finished Goods Inventory　　　　20 000

(4)Ending inventory of finished goods:

Finished Goods Inventory　26 000

　　Income Summary　　　　　26 000

(5)Unexpired Insurance：

Insurance Expense　　3 000

　　Prepaid Insurance　　　3 000

(6)Accrued wages and salaries unpaid at year-end (direct labor $4 000,indirect labor $3 000,administrative     salaries $1 000, and sales salaries $ 2 000)：

Direct Labor　　　　　　　　　　　4 000

Indirect Labor　　　　　　　　　　　3 000

Administrative Salaries Expense　　1 000

Sales Salaries Expense　　　　　　2 000

　　Wages and Salaries Payable　　　　　10 000

(7)Annual depreciation on machinery and equipment,$ 6 000：

Depreciation Expense-Machinery and Equip 　　　　6 000

　　Accumulated Depreciation-Machinery and Equip   　　6 000

(8)Accrued interest payable at year-end,$ 1 000：

Interest Expense　　1 000

　　Interest Payable　　　1 000

(9)Uncollectible accounts expense estimated at 2% of sales：

Uncollectible Accounts Expense　　　9 000

Allowance for Uncollectible Accounts　　　9 000

*(10) Factory supplies on hand, $ 4 000：

Factory Supplies on Hand　2 000

　　Factory Supplies Used　　　2 000

*(11) Office supplies on hand, $2 000：

Office Supplies on Hand　1 000

Office Supplies Used　　　　　1 000

(12) Estimated income taxes, $ 17 000：

Income Tax Expense　17 000

Income Tax Payable　　　　　17 000

* Bass Manufacturing, Inc. charged supplies cost to expense accounts when purchased.

When properly completed, the worksheet contains all the data necessary to prepare the financial statements. The Cost of Goods Manufactured Statement and the Income Statement have been presented in the text. Here, we show the Balance Sheet and the Retained Earnings Statement (in Exhibits 28-4 and 28-5).

Following are the closing entries：

(a) To close the temporary manufacturing accounts：

Manufacturing Summary　　　　　　　　　　　　　　341 000

　　Raw Materials Purchases　　　　　　　　　　　　　　120 000

　　Transportation In　　　　　　　　　　　　　　　　　　　2 000

　　Direct Labor　　　　　　　　　　　　　　　　　　　　　81 000

　　Indirect Labor　　　　　　　　　　　　　　　　　　　　46 000

　　Utilities Expense　　　　　　　　　　　　　　　　　　　16 000

　　Repairs and Maintenance　　　　　　　　　　　　　　　8 000

　　Rent on Plant Facilities　　　　　　　　　　　　　　　　24 000

　　Rent on Furniture and Fixtures　　　　　　　　　　　　　8 000

　　Factory Supplies Used　　　　　　　　　　　　　　　　13 000

　　Administrative Salaries　　　　　　　　　　　　　　　　15 000

　　Insurance Expense　　　　　　　　　　　　　　　　　　2 000

　　Depreciation Expense-Machinery and Equipment　　　　　6 000

Raw Materials Returns　　　　　　　　　　　　　　　6 000

　　Manufacturing Summary　　　　　　　　　　　　　　　　　6 000

(b)To close all expense accounts and the Manufacturing Summary account：

Income Summary　　　　　　　　　　426 000

　　Utilities Expense　　　　　　　　　　　　　4 000

　　Repair and Maintenance　　　　　　　　　　2 000

　　Rent on Plant Facilities　　　　　　　　　　　6 000

　　Rent on Furniture and Fixtures　　　　　　　　2 000

　　Administrative Salaries　　　　　　　　　　　26 000

　　Office Supplies Used　　　　　　　　　　　　3 000

　　Sales Salaries　　　　　　　　　　　　　　18 000

　　Advertising　　　　　　　　　　　　　　　　　9 000

　　Interest Expense　　　　　　　　　　　　　　4 000

　　Insurance Expense　　　　　　　　　　　　　1 000

　　Uncollectible Accounts Expense　　　　　　　9 000

　　Income Tax Expense　　　　　　　　　　　　17 000

　　Manufacturing Summary　　　　　　　　　　325 000

(c)To close Sales account：

Sales　　　　　　　　450 000

　　Income Summary　　　　450 000

(d)To close the Income Summary and Dividends Declared accounts：

Income Summary　　　　300 000

　　Retained Earnings　　　　300 000

Retained Earnings　　　　4 000

　　Dividends Declared　　　　　4 000

Bass Manufacturing Inc. classified Dividends Declared as a contra account to Retained Earnings until closing.

After the closing entries are recorded and posted, a post-closing trial balance may be taken. Reversing entries are usually made for the accruals at the beginning of the subsequent year.

LESSON TWENTY-NINE COST ACCOUNTING

Cost accounting systems provide timely unit product costs through the use of perpetual inventory procedures and predetermined factory overhead rates. To introduce the basic ideas of cost accounting system, we present a simplified illustration to show the flow of product costs as follows：

Acquisition of Materials    Materials Inventory account rather than Purchases account will be debited under a perpetual inventory system. Both raw materials and factory supplies are included in the inventory account. Materials ledger cards for each type of material or factory supply used make up the subsidiary record.

(1) Materials Inventory　　　　1 000

　　　　Accounts Payable　　　　　1 000

　　(All figures are assumed)

Recording Factory Payroll    The total factory payroll includes both direct and indirect labor.

(2)Factory Payroll　　　　　　　600

　　　Factory Payroll Payable　　　　600

Recording Other Factory Costs as Overhead    Various items other than materials and labor costs are charged to Factory Overhead account.

 (3) Factory Overhead　　　　　　　800

　　　　Accumulated Depreciation　　　200

　　　　Prepaid Insurance　　　　　　　150

　　　　Accrued Utilities Payable　　　　100

　　　　Various Accounts　　　　　　　350

At this point, all product costs have been accumulated into debit balances in the Materials Inventory, Factory Payroll, and Factory Overhead accounts. We are now ready to trace these costs through Work in Process and Finished Goods to the Cost of Goods Sold account.

Recording Requisitions of Raw Materials and Factory Supplies

This entry reflects the requisition (evidenced by the material requisitions) of all materials to be used in production. Raw materials (or direct materials) are charged directly to the Work in Process account. Costs of factory supplies (or indirect materials) become part of factory overhead.

(4)Work in Process　　　　600

　Factory Overhead　　　　200

　　　Materials Inventory　　　　800

Recording Distribution of Factory Payroll    Work in Process is debited for the direct labor and Factory Overhead is debited for the indirect labor. The total factory payroll is distributed, leaving a zero balance in the Factory Payroll account. The division of total factory payroll into direct and indirect labor is based on a detailed analysis of the job description, wage rates and hours worked of each employee (evidenced by such documents as the time tickets).

(5)Work in Process　　　500

　Factory Overhead　　　100

　　　　Factory Payroll          　　600

Recording Application of Factory Overhead    Most firms do not apply the actual amount of overhead incurred each period to the goods manufactured during that period. Instead, overhead is applied at average rates that reflect estimates of total annual production volume and total overhead costs for the year. Predetermined overhead rates are computed by estimating the coming year’s total factory overhead cost and dividing it by an estimate of some unit of activity (such as direct labor hours, direct labor costs or factory machine hours).

(6)Work in Process　1200

　Factory Overhead　　　1 200

(240% of direct labor cost)

Recording Completed Production    This entry reflects the assignment of costs to completed production and the transfer of those costs from Work in Process to Finished Goods. As we shall explain in Lesson 30 and Lesson 31,the amount of this entry is derived from production records, the details of which will vary with the particular product costing system used by the firm.

(7)Finished Goods　2 000

　Work in Process　　　　2 000

Suppose that the firm produces a single product and the units completed in that period are 1 000,the unit product cost would be $2.

Recording Cost of Goods Sold    This entry transfers the cost of finished products sold (700 units @ $ 2) to the Cost of Goods Sold account:

(8) Cost of Goods Sold　1 400

　　Finished Goods　　　　　1 400

Exhibit 29-1 diagrams the results of the foregoing entries as the various product costs move through the manufacturing accounts:

Under-or over-applied overhead ( an over-applied overhead $ 50 in our example) is expected at the end of interim accounting periods and is shown as deferred debits or credits on interim balance sheets. If the amount is immaterial, it is closed to Cost of Goods Sold at year-end; if material, it may be allocated among the Work in Process, Finished Goods and Cost of Goods Sold accounts.

New Words, Phrases and Special Terms

Notes to the Text

1. As we shall explain in Lesson 30 and Lesson 31,the amount of this entry is derived from production records, the details of which will vary with the particular product costing system used by the firm,

(1)全句包含一个用连词as引导的方式状语从句。

(2)主句中还包含一个修饰production  records的定语从句。用关系代词(所有格)of which引导。

2. Suppose that the firm produces a single product and the units completed in that period are 1 000,the unit product cost would be $2.

(1)全句包含一个用连词suppose  that引导的条件状语从句。

(2)这个状语从句是用连词and连接的两段并列的分句构成。

3. If the amount is immaterial, it is closed to Cost of Goods Sold at year-end; if material, it may be allocated among the Work in Process, Finished Goods and Cost of Goods Sold accounts.

(1)用分号“;”连接的并列句。

(2)每一分句中,都包含一个用连词if引导的条件状语从句。

(3)条件状语从句ifmaterial中,主语及谓语动词the amount is被省略。

READING MATERIAL

COST ACCOUNTING SYSTEMS AND FINANCIAL STATEMENTS

Any orderly method of developing cost information constitutes cost accounting. Although a cost system could be a special analysis maintained independently of a firm's formal accounting records, most comprehensive cost systems are integrated into the general ledger accounts of the firm. Similar procedures will be followed in preparing the financial statements from the firm’s ledger account balances. However, a few points should be mentioned.

When perpetual inventory procedures are used in cost accounting systems, the ending balances of all three inventory accounts—Materials, Work in Process, and Finished Goods—will reflect the period’s routine transactions that increase and decrease inventories These ending balances require adjustment only if a discrepancy becomes apparent from taking a year-end physical inventory. Note also that the cost of goods sold figure has been accumulated throughout the year in a general ledger account and can be placed directly' on the income statement. Detailed information is available in the related accounts for preparing analyses of cost of goods manufactured and cost of goods sold. The format of financial statements for firms using cost accounting systems is similar to that illustrated in Lesson Twenty-Eight.

LESSON THIRTY JOB ORDER COSTING

There are two basic types of cost accounting systems: job order cost accounting and process cost accounting. Job order cost accounting (sometimes called job lot or specific order costing) is appropriate when production is characterized by a discontinuous series of products or jobs undertaken either to fill specific orders from customers or for a general stock of products from which future orders will be filled. This type of costing is widely used in construction, printing, and machine shop operations. Often the products or batches of product vary in their material components and manner of production. In contrast, process cost accounting lends itself most readily to the production of a large volume of undifferentiated products manufactured in a "continuous flow” operation, such as distillation of fuels or the manufacture of paint, chemicals, wire and similar items. Essentially the same ingredients and operations are involved during each period of manufacture. A major purpose of either system is to allocate manufacturing costs to products to determine unit costs.

A simplified illustration of job order cost accounting is diagramed in Exhibit 30-1.

In a job order costing system, costs are identified with the specific jobs or orders to determine the cost of products manufactured. Job cost sheets will serve as the subsidiary records for the Work in Process account. Detailed material inventory records and requisitions must differentiate between raw materials and factory supplies and accumulate the cost of raw materials by job number. Likewise, detailed payroll records and time tickets must differentiate among direct labor, indirect labor, non-factory labor costs and accumulate direct labor costs by job number. Factory supplies used and indirect labor costs are accumulated in Factory Overhead account together with all other manufacturing expenses. As explained earlier, actual overhead is not identified directly with specific jobs. Instead, through the use of a predetermined overhead rate (here,75% of direct labor cost),the Work in Process account is charged with estimated overhead absorbed ($ 1 200X75%= $900), which is $ 30 less than the actual overhead incurred ( $ 930) in our illustration.

After overhead cost has been entered on the job cost sheets, all elements of cost—raw materials, direct labor and overhead—can be totaled. When a job order is completed, the unit cost is obtained by dividing the number of units produced into the total accumulated cost. The job cost sheet can then be removed from the Work in Process ledger and filed. At the same time, an entry is made in the Finished Goods ledger, showing quantities, unit cost, and total cost of the product entered. At the end of the accounting period, when all related postings to general ledger accounts are completed, the materials ledger cards, job cost sheets, and finished goods ledger should present a detailed analysis of the balances in the Materials, Work in Process, and Finished Goods accounts, respectively：

New Words, Phrases and Special Terms

Notes to the Text

1. Job order cost accounting (sometimes called job lot or specific order costing) is appropriate when production is characterized by a discontinuous series of products or jobs undertaken either to fill specific orders from customers or for a general stock of products from which future orders will be filled.

(1)全句包含一个用连词when引导的时间状语从句。

(2)在这一状语从句内,用以修饰jobs的过去分词复杂结构undertaken…中,用either…or…连接两个并列的状语,一个是不定式短语to fill…,一个是由介词for引导的复杂结构,其中的定语从句from which…用来修饰a general stock of products。

2. In contrast, process cost accounting lends itself most readily to the production of a large volume of undifferentiated products manufactured in a “continuous flow” operation, such as distillation of fuels or the manufacture of paint, chemicals, wire and similar items.

(1)这是一个简单句,句内包含许多短语。

(2)In contrast是在整段文句中承上启下的插入语。

(3)短语动词lends   itself…to中,lend后要接用介词to。

(4)这一短语动词的宾语是the production of a large volume of undifferentiated products,并且用一个过去分词短语manufactured…作为定语来修饰它,在这一短语中,such as distillation…or the manufacture…是a "continuous flow" operation 的同位语。

READING MATERIAL

VARIABLE, FIXED, SEMIVARIABLE COSTS

For purposes of analyzing their behavior patterns (性态模式),factory costs are usually classified as variable(变动的),fixed (固定的)and semi-variable (半变动的). The classification of factory costs into these distinct groups is seldom a simple matter. however. Costs frequently behave in an erratic and inconsistent manner and the cost analyst must be quite circumspect(慎重) in analyzing their behavior.

Variable costs are those costs that change proportionately with changes in the volume of activity. Raw (or direct) materials cost, for example, usually behaves in this manner. Direct labor cost can also often be classified as variable.

Fixed costs (sometimes called non-variable costs不变成本)are those that are usually related to a time period and remain unchanged when the volume of activity changes. Examples are depreciation on buildings and property taxes.

Semi-variable costs are sometimes called mixed costs (混合成本) because they can be described analytically as having both fixed and variable components. A semi-variable cost is one that increases or decreases(线性地)with changes in activity, but is also some positive amount at zero activity. Changes in total semi-variable costs are therefore not proportional to changes in operating volume.

As an example of a semi-variable cost, consider a firm’s utility expense. Even if the firm were to shut down production(停产)for one period, it would be required to pay a minimum amount for utilities. When production resumed, the cost of heat, light, and power would increase as production increased. Total production costs, in fact, are virtually always semi-variable.

Per-unit costs behave as follows when volume of activity is increased：

Variable—remains constant,

Fixed—decreases proportionately,

Semi-variable—decreases less than proportionately.

LESSON THIRTY-ONE PROCESS COSTING>

In Lesson Thirty, we explained that a process cost system is appropriate in accounting for costs in the production of a large volume of relatively homogeneous products manufactured in a "continuous flow” operation. Costs in a process costing system are identified with a cost center (a processing or production department) during a period of time—usually a month. A separate work-in-process account is kept for each processing or production department, and monthly costs are accumulated in these accounts. At the end of each month, costs are summarized for each cost center in a cost of production report. This report provides the unit cost information that can be used to determine costs of goods transferred from process to process and finally into the finished goods inventory. Thus, whereas a job order system has one work-in-process account supported by a number of job cost sheets;  a process system has several work-in-process accounts, each supported by a monthly cost of production report. In a sense, process cost accounting is basically an averaging computation. It results in averaging the total process costs for a time period over the related amount of production accomplished during that period. The following cost of production reports illustrate the cost computing procedures for a liquid product, the production of which involves only two successive processes mixing and bottling. In Mixing Department, various ingredients are added at the start of the process and conversion costs are incurred evenly throughout processing. In Bottling Department, both raw materials and conversion costs are assumed to occur evenly throughout the process. The company uses a predetermined overhead rate of 50% of direct labor costs in both departments.

Note that：

(1)When there is ending work-in-process inventory, the measurement of work accomplished in a period requires that partially completed units be converted to a smaller number of equivalent units. If materials are added and conversion accomplished at different rates (or unevenly), equivalent units must be computed separately for each cost factor (as in the case of mixing department).

(2)The total of all costs in beginning inventories and all costs charged to work in process must be accounted for as cost of ending work-in-process plus cost of goods transferred out

(3)In assigning manufacturing costs, it is helpful to think of three batches of products: units transferred out from beginning work-in-process inventories, units both begun and completed this period, and units remaining in ending work-in-process inventories.

(4)The total cost to be accounted for in a department includes any cost associated with units transferred in from another department.

The flows of manufacturing costs and the related summary entries may be presented as follows:

New Words, Phrases and Special Terms

Notes to the Text

1. Thus, whereas a job order system has one work-in-process account supported by a number of job cost sheets ; a process system has several work-in-process accounts, each supported by a monthly cost of production report.

(1)用whereas连接的并列句。

(2)在后一段分句aprocess system has…中,包含一个由代词each＋过去分词短语supported by…组成的独立结构。

2. When there is ending work-in-process inventory, the measurement of work accomplished in a period requires that partially completed units be converted to a smaller number of equivalent units.

(1)全句包含一个用连词when引导的时间状语从句。

(2)主句中谓语动词requires的宾语是由连词that引导的从句,从句中 的谓语动词be converted属祈使语气。

READING MATERIAL

COST ALLOCATIONS FOR JOINT PRODUCTS AND BY-PRODUCTS

Joint products (联产品) are products of significant value originating from a common raw material or process. An obvious example of a raw material whose processing results in joint products is crude oil, from which a wide variety of fuels, solvents, lubricants, and residual petrochemical pitches are derived. Joint product costs are allocated among joint products primarily for purposes of inventory costing. Probably the most popular method of allocating joint costs is the relative sales value method(对比售价法). The total joint cost is allocated to the several joint products in the proportions that their individual sales values bear to the total sales value of all joint products at the split-off point (where physical separation is possible). For example, assume that 50 000 32-gallon barrels of crude oil costing $ 1 200 000 will be processed into 800 000 gallons of fuel selling for $ 0.75 a gallon, 400 000 gallons of lubricants selling for $ 2 a gallon and 1000 000 gallons of petrochemical residues selling for $ 0.20 per gallon. The following calculations illustrate how this joint cost would be allocated using the relative sales value method.

By-products (副产品) are products that have relatively little sales value compared with the other products derived from a process. By-products are considered incidental to the manufacture of the more important products. For example, the sawdust or shavings generated in a lumber planing mill (刨木工场)is a by-product. The appropriate accounting procedure for byproducts is to assign them an amount of cost equal to their sales value less any disposal costs. The net amount is charged to an inventory account for the by-product and credited to the work-in-process account to which the original materials were charged.

LESSON THIRTY-TWO STANDARD COSTS

Standard costs are those amounts that analysis has shown should be incurred for raw materials, direct labor, and factory overhead. Standard costs are developed prior to the operating periods to which they apply and remain in effect until circumstances require their revision. Routine comparison of actual costs with standard costs permits management to operate on the principle of “management by exception”. This means that management concentrates its efforts on those aspects of operations that are out of line with standards, therefore causing unfavorable variances.

Establishing standard costs can be a complex task. Most companies establish cost standards on the basis of some reasonably attainable (rather than theoretically perfect) level of efficiency. If the determined standards are too seldom or too easily attainable, they tend to lose their motivating force and cease to be a standard of performance against which actual performance can be meaningfully measured. Standards should be updated from time to time whenever significant changes occur in prices, materials used, production technology, labor rates or contracts, or product design. In the final analysis, the variances determined with the aid of standard costs can be meaningful only if the standards used represent a potentially attainable level of efficiency under current operating conditions.

Ordinarily, a manufacturing firm establishes standard costs for each of its products. Each standard cost consists of a standard raw materials cost, a standard direct labor cost, and a standard factory overhead cost.

1. Standard Cost of Raw Materials (used to make a finished unit) = Standard Usage X Standard Price
2. Standard Cost of Direct Labor (used to make a finished unit) = Standard Time X Standard Rate
3. Total Budgeted Factory Overhead = Total Budgeted Fixed Overhead＋(Budgeted Variable Overhead per Unit×Production Volume under Normal Capacity)

Total budgeted factory overhead will be applied to a finished unit to determine the standard cost of factory overhead.

Assume that Abbott Manufacturing Company's standard cost summary for Product A appears as follows：

Even in well-managed companies in which cost standards are carefully established and currently maintained, actual costs often differ from standard costs. Once variances occur, they should be analyzed for indications of their cause so that appropriate action may be taken.

Suppose that during the month of June Abbott Manufacturing Company produced 9 800 units of Product A, for which it incurred the following actual costs (assume there are no work-in-process inventories) ：

Comparison of actual and standard costs of Product A is given in Exhibit 32-2.

Standard costs may be used more or less informally in periodic management reports devoted to cost control. It is well accepted, however, that they are most effective when they and their related variances are recorded in the general ledger accounts. The journal entries to record the above standard costs and variances are as follows：

To record completed production for Abbott Manufacturing Company for the month of June, the following entry would be made (9 800 units at a standard unit cost of $ 12)：

Finished Goods (at standard cost)1　　17 600

　　Work in Process (at standard cost)　　　117 600

As each month’s production is sold, the related amounts of standard costs are transferred from Finished Goods to Cost of Goods Sold. At the end of the operating year it is fairly common practice to close the variance accounts by transferring their balances to Cost of Goods Sold. In effect, this converts the Cost of Goods Sold account from standard costs to actual costs.

New Words, Phrases and Special Terms

Notes to the Text

1. Standard costs are those amounts that analysis has shown should be incurred for raw materials, direct labor, and factory overhead.

(1)用关系代词that引导的定语从句修饰全句表语thoseamounts。

(2)这一从句中,包含一个插人语analysis has shown。

2. Standard costs are developed prior to the operating periods to which they apply and remain in effect until circumstances require their revision.

(1)整个句子包含用连词and连接的两个并列的谓语are  developed…和remain…。

(2)在前一段谓语中,包含一个修饰the          operating periods的定语从句to which they apply。

(3)在后一段谓语中,包含一个用连词until引导的时间状语从句。

3. This means that management concentrates its efforts on those aspects of operations that are out of line with standards, therefore causing unfavorable variances.

(1)全句包含一个用连词that引导的宾语从句。

(2)在这一宾语从句中,又包含一个用关系代词that引导的定语从句,以修饰those aspects of operations。

(3)现在分词短语(表示结果)therefore causing…用来修饰整个定语从句。

4. If the determined standards are too seldom or too easily attainable, they tend to lose their motivating force and cease to be a standard of performance against which actual performance can be meaningfully measured.

(1)全句包含一个用连词if引导的条件状语从句。

(2)主句中用连词and连接两个并列的谓语tend to lose…和cease to be…。

(3)在后一段谓语中,还包含一个用关系代词which引导的定语从句, 用以修饰a standard of performance。

5. Once variances occur, they should be analyzed for indications of their cause so that appropriate action may be taken.

(1)全句包含一个用连词Once引导的时间状语从句。

(2)主句中还包含一个用so    that引导的目的状语从句。在so that﹑in order that或that引导的目的状语从句中,谓语动词常用may(或might) ＋动词的原形。这里的may be taken属被动语态。

6. It is well accepted, however, that they are most effective when they and their related variances are recorded in the general ledger accounts.

(1)that they are most effective 是全句的真正主语。

(2)句中包含一个用连词when引导的时间状语从句。

READING MATERIAL

RELEVANT COSTS FOR DECISION MAKING

In decision making, cost is always a key factor. The costs of one alternative(备选方案) must be compared against the costs of other alternatives as one step in the decision-making process. The problem is that some costs associated with an alternative may not be relevant for the decision to be made. A relevant cost(相关成本)can be defined as a cost that is applicable to a particular decision in the sense that it will have a bearing on which alternative the manager selects.

What costs are relevant in decision making? The answer is easy. Any cost that is avoidable is relevant for decision purposes. An avoidable cost (可避免成本)can be defined as a cost that can be eliminated as a result of choosing one alternative over another in a decision-making situation. All costs are considered to be avoidable, except sunk costs(沉落成本,旁置成本)and future costs (未来成本)that do not differ between the alternatives at hand.

The term relevant costs does not necessarily have the same meaning as the term variable costs. Variable costs are those that vary proportionately with changes in the volume of output. By contrast, relevant costs are always related to specific alternatives that are being analyzed. If, in a specific problem, the alternatives involve operating at different volumes, then relevant costs may well be the same as variable costs. Depending on the problem, however, the relevant costs may include non-variable items.

Marginal cost (边际成本) is a term used in economics for what accountants call variable costs. The marginal cost of a product is the cost of producing one additional unit of that product. Thus, marginal costs may be the same as relevant costs in those problems in which an alternative under consideration involves changing the volume of output. Differential cost (差别成本)and incremental cost (增量成本)are terms that usually mean the same thing as relevant cost.

LESSON THIRTY-THREE COST-VOLUME-PROFIT ANALYSIS

Cost-volume-profit(CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and utilization of productive facilities. The concept is so pervasive in managerial accounting that it touches on virtually everything that a manager does.

CVP analysis is sometimes referred to simply as break-even analysis. This is unfortunate because break-even analysis is just one part of the entire CVP concept. However, it is often a key part and it can give the manager many insights into the data with which he or she is working.

The break-even point can be defined equally well as the point where total sales revenue equals total expenses, variable and fixed, or as the point where total contribution margin equals total fixed expenses. As suggested by these two definitions of the break-even point, break-even analysis can be approached in two ways: first, by what is called the equation method; and second, by what is called the unit contribution method.

As a basis for discussion, assume Barton Company sells carpets. The selling price is $ 240 per carpet. The variable costs are $ 120 per carpet and the fixed expenses total $ 21 600 per month.

The Equation Method    The equation method centers on the contribution approach to the income statement. The format of the statement can be expressed in equation form as：

Sales=Variable Costs＋Fixed Expenses＋Profits

At the break-even point, profits will be zero. Therefore, the break-even point can be computed by finding that point where sales just equal the total of the variable costs plus the fixed expenses. For the Barton Company, this would be：

After the break-even point in units sold has been computed, the break-even point in sales dollars can be computed by multiplying the break-even level of units by the sales price per unit：

180carpets×$ 240= $43 200

At times, the dollar relationship between variable costs and sales may not be known. In these cases, if one knows the percentage relationship between variable costs and sales, then the breakeven point can still be computed, as follows：

The Unit Contribution Method    The unit contribution method is actually just a variation of the equation method already described. The approach centers on the idea that each unit sold provides a certain amount of contribution margin that goes toward the covering of fixed costs. To find how many units must be sold to break even, one must divide the total fixed expenses by the contribution margin being generated by each unit sold：

Fixed Expenses/Unit Contribution Margin= Break－even Point

Each carpet that the Barton Company sells generates a contribution margin of $ 120 ( $ 240 selling price less $ 120 variable costs). Since the total fixed expenses are $21 600,the break-even point is：

$ 21 600/ $ 120=180carpets  

If only the percentage relationship between contribution margin and sales is known, the computation becomes：

Fixed Expenses /CM Ratio= $ 21 600/50%= $ 43 200

This approach to break-even analysis is particularly useful in those situations where a company has multiple product lines and wishes to compute a single break-even point for the company as a whole.

New Words, Phrases and Special Terms

      

Notes to the Text

1. The concept is so pervasive in managerial accounting that it touches on virtually everything that a manager does.

(1)全句包含一个用so…that引导的结果状语从句that it touches…。

(2)在这一状语从句中,还包含一个用关系代词that引导的定语从句, 修饰everything。

2. The break-even point can be defined equally well as the point where total sales revenue equals total expenses, variable and fixed, or as the point where total contribution margin equals total fixed expenses.

(1)全句的谓语中,用连词or连接以介词as引导的两个并列的状语复杂结构。

(2)在这两个并列的复杂结构中,介词as的宾语point各有一个以关系副词where引导的定语从句来修饰它。

(3)在前一个定语从句中,variable  and fixed是expenses的同位语。

READING MATERIAL

BUDGET PREPARATION

All business enterprises engaged in a comprehensive budgeting effort must consider certain elements of budget preparation(预算编制).  These are the budget committee (预算委员会), the budget period(预算期), and the master budget (总预算).

A firm’s budget committee generally consists of representatives from all major areas of the firm, such as sales, production, and finance, and is headed by the firm's chief financial officer (首席财务官,CFO). The committee is responsible for coordinating the preparation of the budget, initiating budget procedures, collecting and integrating data from various organizational units, supervising the review and modification of original estimates (原价估计数) and directing the implementation of the budget.

The time period covered by a budget varies according to the nature of the specific activity involved. Cash budgets (现金预算) may cover a week or a month, production budgets(生产预算)a month or a calendar quarter, general operating budgets(总营业预算)a calendar quarter or year, and budgets for acquisition of long-lived assets often termed capital expenditure budgets (资本支出预算)may cover several years. Generally speaking, the longer the budget period, the more likely it is that the budget will be reviewed and subsequently revised to consider the latest information available.

A master budget is a comprehensive planning document that integrates all the detailed budgets for the various specialized activities of the firm. The details of a master budget vary according to whether the firm’s operations are manufacturing, merchandising, or service oriented. The key components of the master budget of a manufacturing operation may be ：

LESSON THIRTY-FOUR RESPONSIBILITY ACCOUNTING

Responsibility accounting centers on the ideas that an organization is simply a group of individuals working toward common goals. The more each individual can be assisted in the performance of his or her tasks, the better chance the organization has of reaching the goals it has set. Responsibility accounting recognizes each person in an organization who has any control over cost or revenue to be a separate responsibility center whose stewardship must be defined, measured, and reported upward in the organization.

Managers have found that a responsibility accounting system functions most effectively in an organization that is decentralized. A decentralized organization is one in which decision making is not confined to a few top executives but rather is spread throughout the organization, with managers at various levels making key operating decisions relating to their sphere of responsibility. In a decentralized organization, the responsibility accounting system is structured around a number of centers. These consist of investment centers, profit centers, and cost centers, each of which defines a particular area of responsibility in an organization.

Responsibility Center    A responsibility center is any point within an organization where control over the incurrence of cost or the generating of revenues is found. Such a point could be an individual, an operation, a department, a company, a division, or the entire organization itself.

Cost Center    A cost center is any responsibility center that has control over the incurrence of cost. A cost center has no control over sales or over the generating of revenue.

Profit Center    By contrast to a cost center, a profit center has control over both cost and revenue. It would be concerned with marketing its goods as well as producing them.

Investment Center    An investment center is any responsibility center within an organization that has control over cost and revenue and also over investment funds. Managers of an investment center have ultimate responsibility for seeing that production and marketing goals are met. In addition, they have responsibility for seeing that adequate facilities are available to carry out the production and marketing functions, and for seeing that adequate working capital is available for operating needs. Whenever a segment of an organization has control over investment in such areas as physical plant and equipment, inventory, and entry into new markets, then it is termed an investment center.

These concepts of responsibility accounting are very important since they assist in defining a manager’s sphere of responsibility and also in determining how performance will be evaluated.

Cost centers are evaluated by means of performance reports, in terms of meeting cost standards that have been set. Profit centers are evaluated by means of contribution income statements in terms of meeting sales and cost objectives. Investment centers are also evaluated by means of contribution income statements but normally in terms of the rate of return that they are able to generate on invested funds.

Transfer pricing presents a significant problem in the evaluation of managerial performance. Transfer pricing relates to the price to be charged in a transfer of goods or an exchange of services between two units (such as divisions) within an organization. A transfer price can be based on the cost of goods being transferred, on the intermediate market price of the goods being transferred, or on negotiated price between the buying and selling divisions. The predominant feeling is that the best transfer price is some version of market price—either intermediate or negotiated—to the extent that such a price exists or can be determined for the goods or service involved. The use of market price or negotiated market price in transfers between units facilitates performance evaluation by permitting both the buyer and the seller to be treated as independent, autonomous units.

New Words, Phrases and Special Terms

Notes to the Text

1. The more each individual can be assisted in the performance of his or her tasks, the better chance the organization has of reaching the goals it has set.

(1)The more…the better…,表示对比的两种情况正比例地增减,可以把前一段看作状语从句,修饰后面的主句。

(2)主句是倒装结构,the organization是主语,谓语动词has的宾语是the better chance,介词of引导的定语复杂结构修饰chance。

(3)介词of的宾语是动名词复杂结构reaching…。其中,定语从句it has set修饰reaching的宾语the goals,引导从句的关系代词that作为谓语动词has set的宾语,被省略。

2. A decentralized organization is one in which decision making is not confined to a few top executives but rather is spread throughout the organization, with managers at various levels making key operating decision relating to their sphere of responsibility.

(1)全句包含一个以关系代词which引导的定语从句,which在从句中作为介词in的宾语。

(2)这一从句的谓语是用连词but引导的并列结构is not confined…和rather is spread…；在后一段谓语中,用作状语的是由介词with引导的短语,其中,managers…making…是with的复合宾语,作为宾语managers的补语的,是现在分词短语making…。在这一现在分词短语中,又包含一个修饰operating decision的现在分词短语relating to…。

READING MATERIAL

CAPITAL BUDGETING

The term capital budgeting (资本预算)is used to describe actions relating to the planning and financing of capital outlays for such purposes as the purchase of new equipment, the introduction of new product lines, and the modernization of plant facilities. As such, capital budgeting decisions are a key factor in the long-run profitability of a firm. This is particularly true in situations where a firm has only limited investment funds available but has almost unlimited investment opportunities to choose from.

Business investments have two distinguishing characteristics. The first is that they often involve depreciable assets and the return(报酬﹑收益) that the assets provide must be sufficient to recoup the original investment itself as well as to provide a satisfactory yield(收益) on the investment. The second is that business investments are generally long term in nature, often spanning a decade or more. This characteristic lays heavy stress on the necessity to recognize the time value of money (货币时间价值)in business investment decisions.

Although several methods of making capital budgeting decisions are in use, the ones that do the best job are those involving discounted cash flows (折现的现金流量).The discounted cash flow methods give full recognition to the time value of money and at the same time provide for full recovery of any investment in depreciable assets. No other capital budgeting method is capable of performing both of these functions.

There are two approaches to making capital budgeting decisions by means of discounted cash flow. One is known as the net present value (净现值法)and the other is known as the time-adjusted rate of return method (时间调整的报酬率法),sometimes called the internal rate of return method(内含报酬率法).

Under the net present value method, the present value of all cash inflows (现金流入量)is compared against the present value of all cash outflows(现金流出量)that are associated with an investment project. The difference between the present value of these cash flows, called net present value, determines whether or not the project is an acceptable investment. Generally speaking, if the net present value is positive, the project is acceptable；if the net present value is negative, then the project should be rejected.

The time-adjusted rate of return, or internal rate of return, can be defined as the true interest yield promised by an investment project over its useful life. It can be computed by finding the discount rate that will equate the present value of the investment (cash outflows) required by a project with the present value of returns (cash inflows) that the project promises. In other words, the time-adjusted rate of return is that discount rate which will cause the net present value of a project be equal to zero.

Once the time-adjusted rate of return has been computed, it is compared against whatever rate of return (usually the cost of capital) the organization requires on its investment projects. If the time-adjusted rate of return is greater than the cost of capital, then the project is acceptable. If it is less than the cost of capital, then the project is rejected. A project is not a profitable undertaking if it cannot provide a rate of return at least as great as the cost of the funds invested in it.

The other commonly used capital budgeting method is payback method (回收期法).The basic formula to compute payback period is：

Payback Period= Investment/Gash Inflows

Payback period tells the number of years over which the investment outlay will be recovered or paid back from the cash inflows if the estimates turn out to be correct. Payback is often used as a quick, but crude, method for appraising proposed investments, If the payback period is equal to or only slightly less than the economic life of the project, then the proposal is clearly unacceptable. If the payback period is considerably less than the economic life, then the project begins to look attractive.